"What's Coming Is WORSE Than A Recession" - Ray Dalio's Last WARNING

I'm a global macro investor and economics markets politics and geopolitics all matter and there were three things that are happening in our lifetimes that never happened in my lifetime or our lifetimes and that I learned before I have to study past periods and those three things are the creation of a lot of debt and money the second is the amount of internal conflict that we're having over money and values and what that's like and the third is the change world order with countries like China and Russia competing with the United States in a way that

didn't exist before it's a basic thing everybody agrees we need more money and we need more spending but if you spend more than you earn you have to borrow and that creates debt at first it's credit so it gives you buying power but you have to pay it back and that becomes depressing and so in order to avoid that central banks can print money and buy it back but when they do that that depreciates the value of money so what we had was a lot of money and credit go out to a lot of people

a lot of buying power everybody when they got it they thought Ah that's great and somehow they seem surprised that when when they spend it the prices of everything go up but the truth is that if you divide the amount of money and credit that's used for spending by the quantity of goods produced you can calculate well the prices will change and so so that's what's going on and that's what went on in a giant wave the Federal Reserve and the government together and that produced a giant amount of inflation between seven and a half

if you use year-over-year or if you take a core inflation rate it's closer to 12 and it's rising there's some temporary influence but it's basically because of the amount of spending you can measure the amount of spending not because of the bottlenecks buying power is what matters right so what happens is when inflation goes up faster than your other sources of income you lose buying power but somehow that seems more acceptable sometimes to people than if it was just taken out of your pocket you see if they let's say raise taxes or take it out

of somebody's pocket everybody complains whoever's had the pocket taken out of but if it comes through printing of money and everybody gets checks it's more acceptable but those who are holding money like money market funds and bond funds lose the buying power of that so think about those bond funds those bond funds are like down about 10% and inflation is up over let's call it 8% so they lost 18% of the buying power we think of it as meaning higher prices but to some extent that's a rich man's perspective because they say oh now I

have to pay more but the reality is you don't get more stuff from that higher inflation and so it bids it out of the hands of some people and that hurts the people who don't get it and so we're seeing a time now where you're going to lose buying power to inflation and now you're going to see the Federal Reserve also tighten money tighten money and credit and raise interest rates and when they do that that creates less buying power you know they say okay now you can't spend as much money and the prices are

going high but they do that in their crude way of trying to reduce inflation but you get it from both ends the higher prices and then the higher interest rate you have to pay and the higher debt service costs and also the less availability of money so it's a squeeze like the squeeze that happened in the 1970s these things go in Paradigm shifts that quite often take you know relatively long time because everybody's mindset is in a certain place and they're doing certain things for example investors think that cash is safe and they don't pay

much attention to inflation and then what happens is they get inflation and they realize that if I'm holding cash I'm losing buying power so then they shift they sell out their cash or they sell out their bonds and they put that into other things and when they do that that also contributes to inflation changes like that also happen in a lot of ways like cost of living increases in compensation where in the past when they don't worry about inflation then they don't think about do I have an inflation linked contract for my work or do

I have enough inflation assets it might be oh do I need to buy I'm going to store my money in a house and so that pendulum swing from one mindset and one positioning to another mindset and another positioning in the early stages tends to be self-reinforcing those actions produce more inflation and more inflation psychology until that goes to the opposite extreme like in the 1970s people were surprised about what happened because they weren't used to inflation much then you had the inflation and in the beginning it swung and then at the end of it they

said inflation will never end and everybody's position for it never ending and then of course what happens is it's so bad that then the Central Bank goes the opposite extreme and then they get surprised and so the 80s was a period which was the exact opposite of the 70s where you have falling inflation High real interest rates and so on and so the worst assets to own in the 70s were bonds and the best assets to own in the 80s were bonds so you see these pendulum swings that way the amount of political polarity is

the greatest since 1900 the amount of compromise is the lowest it's been it's measured by how voting across party lines there are two monoliths and they're at war with each other and we have populism which is you have to get on one side or the other so when the causes that people are behind are more important to them than the system the system is in jeopardy the move toward power dynamics the idea of democracy is compromise reaching cross that the law and the rule is of a higher purpose than anything else but when you get

other things that are more important to people that they're willing to fight for then you get greater and greater and it's self-reinforcing because moderates are people who want to work across party lines and so on and compromise are through history through the French Revolution Russian Revolution Chinese Revolution or these are civil wars in all of those cases the moderates they're hurt or they're disposed of and you have to pick a side but you're seeing this now the ideologies are dominant so for example when Elon Musk buys Twitter the decisions he will make will probably have

a greater effect on our society than the decisions the Supreme Court makes it's one of the symptoms that it's not normal economics in the usual way so it's a different game that people should be aware of I have a principle which is that if you worry you don't have to worry and if you don't worry you need to worry because if you worry about things like if you read about the consequences of what has happened in history and you look at the likelihood and you say okay we can have this kind of a conflict or

we could have that kind of a conflict external conflict and boy these conflicts are terrible maybe that sort of brings us more together because we have the power together if we don't fight each other in that way and we can compromise and so on I was just in Singapore and uh what they had is they had savings because they have a large savings the income from that savings covers 20% of their budget so one generation is giving the other generation a savings a good education and Civility and this happens in certain places what we have

left our generation with is debts a broken down infrastructure and fighting I mean the answer is if we're all good with each other and we're productive and we earn more than we spend we won't have a problem but we got to get there if I was president to the United States I would have a bipartisan cabinet to try to bring moderates from both sides I'd have an economic program that was put together like a Manhattan Project in which smart people from both sides would make changes I have my own changes that could happen in which

they would both increase the size of the p and divide it well I mean move much more toward equal opportunity which people are productive I'll describe the cycle by an order I mean like a world order or domestic order a system that's in place run by the people who have the power and then they determine what the system is like so you change orders usually by Wars because you have a conflict and then okay how do you resolve the conflict they have a war so World War II ended in 1945 the United States won World

War II dominantly it became the richest country in the world having 80% of the world's money money was gold then it had 80% of world's gold and a dominant military it had a monopoly on that and it counted for half the world's economy and so it set the rules it's the reason why the United Nations is in New York and the IMF and the World Bank in Washington DC it was the American World Order because it was dominant power now when you are in a dominant power also these wars are sort of great equalizers people

come back from the war it's not like some are rich and some are poor the same way there's a restructuring and you don't have the same wealth gaps and resentments and so on and that usually means that you have a period of peace and prosperity peace because nobody wants to fight the dominant power and then they work together and they produce peace and prosperity and that happens and that's really does best in the capitalist system in which capital is provided to those who have good ideas because they say We'll invest in you and you'll be

productive and so on but what capitalism does at the same time is it creates large wealth gaps and also creates higher levels of indebtedness so it creates the large wealth gaps because it distributes that unequally and then that can be self-perpetuating because those who get power like if you have more money you can educate your children better gradually you lose equal opportunity and you produce wealth Gap and you produce resentments and you also then create larger amounts of debt quite often that means that that's a problem down the road now what happens when you become

the world's largest power this is also always the cas it happened with the Dutch it happened with the British that because you're so powerful in production you go all around the world and you are the largest trading country in the world you get more exports than other countries and more transactions are in your currency and so everybody uses your currency which becomes the world's Reserve currency and because it's the world's currency different countries save in it which means that they lend to you in it and that increases your debt to foreigners because when hold a

bond or they hold cash in that they're lending it to you to get the dollars back in the future and so that is also one of the ingredients of making a top there the wealth gaps there's that and then there's also a change in generations and generation psychology the greatest Generation in a sense of those who fought through the war appreciate basic things you know that kind of a thing and then what happens is when you're on top you become more expensive and quite often more deed I mean you might spend on things that are

not good Investments and don't last very long or whatever you know for entertainment at the S of buying so for example in the United States I remember when we had a per capita income which was 40 times China's and we started borrowing from China so these are the ingredients and then you start to see that they cause problems the financial problem the internal conflict problem and so on and then the type of fighting that we're talking about it's so interesting because in the mid 1600s this is interesting there was 30 years of war they call

it the 30 years war in Europe and they just kept beating the Daylights out of each other and that is when they invented countries as we know it before then there were no boundaries and What mattered was power and if you wanted something that the other guy had you'd go get it and he' do the same with you and there was this constant fighting about things and then in the 1600s they were fighting about religion too you know there's the religious reformation and the others which also had to do with power because the church was

powerful but anyway so they invented countries As We Know It with boundaries and you determine what goes on in your borders and so on and of course for the next 100 years there were hardly any wars but when the time comes there's no Universal legal system you know there's no Universal policeman so if you don't have a universal legal system they've been attempts of that with the United Nations or what before that the League of Nations they attempted that but Power rules and so you're going to have tests of power and it'll come down to

tests of power I want everything that I do to not be opinionated a very big leading indicator is the relative level of education and those that have more educated population and you could see the numbers rise you could see education levels in one country or another rise or decline in these charts so you could see how is the United States in its education and how are other countries and is that Gap improving or worsening because education levels are very indicative of well-being and economic behavior rule of law countries that have rule of law and respect

for the law that keeps order and effectively when crime rates go up it's problem a very good indicator is corruption levels there's a corruption index that all countries have you can see how it changes and as it goes up there's a negative 52% correlation with the growth of a country and its corruption over the next 10 years the USA is reasonably good on the corruption element Russia is bad you know it's interesting because these are predictors of the future and what you find out is like if you look at Russia I'll give that as an

example it's blessed with the greatest natural resources of any country in the world the value of its natural resources are 40% higher than the next highest country which is the United States and it does a pretty good job of having an educated population it's not heavily indebted and so on but it's cultural issues in terms of these things like corruption also there are measures of bureaucracy versus efficiency lots of measures of attitude can I start a business and make my dreams happen you can see the differences between countries on just that attitude okay and also

you could see it in the bureaucracy how long does it take to set up a business there are statistics like that if there was education and experience from the age of 5 to 15 that would change everything we learn differently scientists have shown prior to puberty we learn in an internal way and you'll find that a number of people had their passion at around age 12 because that has to do with how the mind changes but if you take that 5 to 15 and you incorporate it in the education system and practice of saving spending

and so on you don't need a PhD in this thing the money thing is kind of very basic you know if I can buy it for less than I sell it that's a good thing the more volume I could do the better it is then there are fixed costs and they're variable cost so if I'm going to build a stand a lemonade stand okay what's that going to cost me okay that's a capital expenditure it's all the same stuff that you could learn you know at those ages and you don't I spent a lot of

time in China starting in 1984 not to earn money because they didn't have any money but because I was very curious and then I got to know and like the people and I was able to help them develop their stock markets and things and and so I watch since I came since 1984 when I first started per capita income has increased by 26 times the poverty rate by measured by hunger went from 88% to less than 1% and life expectancy increased an average of 10 years hunger was 88% that type of poverty and so what

has happened is they have become a roughly comparable power of the United States in some ways a bit ahead in some ways a bit behind and so on and that's in most things if you talk about a military is it in that region is it of that type or is it another type or something but it's comparable if you talk about technology when I first went to China I would give $10 calculators to people and they thought they were Miracle devices now if you take it in artificial intelligence and most Technologies there depends on the

one there may be ahead in some and not so what that means is that they've come up to be a leading competitive power there's no other competitive power like that now a lot of countries now which is scary are roughly comparable in military meaning if you have a war if we have a war with Russia it's not like the United States is military L dominant or so and there more countries have come that way we spend more and we have bases in 70 countries but at the same time that means we're overextended or extended and

it doesn't mean that you'd win a war if there was a war in Europe everybody would be a loser and there are different types of Wars Cyber Wars as well as military Wars and the like what we're now having is a situation where there is that rivalry that could be good healthy compation however history has shown when you deal with who's going to set the rules of the game there might be disagreements and if there were disagreements how are they resolved like the trade dispute it's not like both sides took it to the World Trade

Organization and say we're going to plead our cases and then you make a decision they didn't even think about that right they go to I'm going to do this if you do this and that's where we are sort of so the world is breaking up into these parts where there are two sides kind of like if you look at World War II by way of example you know there are the Allied powers and the Axis powers and then they're in Europe and in Asia and they're different alliances in Europe than there are in Asia because

each has their own interests and it's developing that way so when you take the Ukraine and you look at the Ukraine and that that's more aligned with the other side let's call it the access powers which are the challengers to the United States and to some extent the EUR NATO powers and you have that conflict and you could see in a number of Statistics or actions how the sides are lining up like for example they just ask are you going to apply the sanctions or not are you going to do this and that in the

United Nations did you vote against Russia or not and so on and you can see all those things and you can see how the sides line up for example India lined up with Russia so you could see how this is lining up and you could see that we're coming into this there's no conversations in Communications that's even polite between the two countries right now those things and and that's where we are and if you look at history that's a dangerous place to be I think that there's better than an even chance of a bad stag

flation very bad stagflation because of the Dynamics as for my thought about stagflation look when there's a lot of debt and there's a lot of people holding debt as an asset and the Central Bank wants to get the economy going what they do is they print money and it devalues the value money and the tradeoff between inflation which comes from printing a lot of money and stagnation which comes from it's a burden is a difficult trade-off for the Federal Reserve or any Central Bank so yes I think we're in a period of stagflation but the

most important thing I would like you to do is understand the mechanics behind it so that as things change I'm not just giving you the answer I don't want to just give you the fish I want to teach people how to fish I'll say one and three chance but I think it's actually probably higher than that that we have a type of Civil War internal conflict in which the rules are not followed the compromises are not made that there's movement of people to different states that they believe represent them better and there's a polarity developing

in the going to different states and that there's not obeying the central government so now it becomes a power gang I'm in the business I need to be objective because accuracy is my thing I have to be as accurate as possible I'm not saying that's accurate but I'm saying when I look at that I don't think I assuming that's a one and three I think it's actually probably higher than that there will be that kind of a situation and I think it's higher than a one and three I think maybe significantly higher that you get

into the same conflict and the power international for example does Russia or the West win the war in the Ukraine I'll Define uh Putin winning the war as three things he gains control of the eastern part of the Ukraine Russia's economy is not devastated by sanctions and he remains in power and let's say for example he can attend and Russia attends the next G20 meeting so that's him winning the war because in the beginning of that it was worth his cost I mean he wants more than that he wants a neutral Ukraine or an aligned

Ukraine but he's not going to probably go get that but that's the minimum now that's him winning the war that's also kind of the West losing the war but if he loses the war if he loses that he will probably escalate okay because the war is now being played as a on the ground armies to armies and with sanctions but he has other weapons and rather than go down he will probably escalate that's a game at chicken it's a very dangerous game and there are other issues globally for example you're seeing these alliances work out

and um the United States for very vious reasons sort of pull out of the Middle East and you're seeing China more move in and so these tensions exist and power exists there are more countries that have nuclear weapons now than there were you know there's even talk of joint military operations between China and Iran and so you see these sides begin to align so if I say that there's a one and three chance of some kind of a military confrontation that's scares the hell out of us over that there extremely I don't think that sounds

too high I think it's larger than that so that means I think we're headed for some risky times cuz any one of those things is really is not normal it's pretty bad best assets to not own that's the most important I think is Cash quoted cash is trash there will be a tightening here for the time being and that tightening will have an effect it'll hurt asset prices and so on but cash is not asset tone and bonds are not good tone in my opinion because it's debt it's owning somebody's debt and you won't get

a return think of it the interest rate will not reach the inflation rate so that's the problem then what you have to have I think most importantly is a welld diversified portfolio of other assets diversification is a very powerful tool because it can reduce risks without reducing expected returns now there's lots of ways of getting what you think good Investments are they might be things you know about local businesses and so on or they might be stocks or they could be maybe a little gold or maybe a little bit foreign investing diversification is very important

to do that in a balanced way so I would generally say that would be what I would recommend this was 1982 83 I had to borrow $4,000 for my dad to help to take care of my family bills so I remember thinking how many weeks could I live if I lost my income and I started counting in weeks I think that's the way to do it and then assume that it's power over the next number of years can fall by 3 or 4% a year or if you put it in a risky investment like stocks

or something it can fall buy more so cut that number maybe in half and have twice as much because you have to understand that that's your freedom that is your safety so that first band you must take care of that once you get past that and you feel okay I could take care of my family in a worst case scenario then you have the freedom to then take other kinds of RIS but when you're building that portfolio it's the same thing as when you have a lot of portfolio past that just you want to diversify

well because you could see what happens to the markets every Market stock market bond market most markets have had times where they've gone down over an extended period 60 or 70% in buying power one thing I do for my kids and grandkids and always did was for every holiday like Christmas or their birthday I would give them a gold coin and I said I never want you to sell that gold coin until there's an emergency a real emergency never because you want to buy things and the reason I did that and they'll build over a

period of time and I said don't even sell it you pass it to your kids unless there's an emergency and so you're building that savings because I think we so easily spend so much money on junk I didn't like debt because of the fact that there's an obligation and it's like oh if I get then I'm going to be drowning I'm trying to keep my head against water this is just my own bias anyway the truth is if you find individual bets that are diversifying that your return will equal the average of those returns but

your risk can be cut by 80% by a bet I mean like if you say I'm going to invest in the stock market you can see whatever the bet is look back in history it gives you a pretty good idea of how it goes up and down what your risks are do that by looking at it in inflation adjusted terms is the best way but it goes up and down and you can see how your buying power is if the worst case happened what would that look like and I'm telling you like I'm saying that

the worst cases when you look at that is something like 60 or 70% in buying power whether that's stocks or bonds however if you do that with uncorrelated Investments like when Commodities go up bonds go down you know that kind of thing and you balance things then you find some part goes up when the other part goes down and by doing that you can reduce the risk without reducing the return Holy Grail means if you follow this path this will be the key to your riches 10 to 15 good uncorrelated return streams I always have

to think about what's the worst case scenario can I handle the worst case scenario whatever that is you can be a great investor you can be great at anything and it'll only be one time that knocks you out one time will kill you it's often the case that I believe I can produce a significantly higher return I have than the cost that I pay for debt so it's a logical thing to do it and I still don't do it much and there's one thing about debt for consumption and debt for investment debt for consumption is

really bad because the asset goes away and you're let with this obligation and you know that's risky and it's stressful piles up you're living above your means don't do that it's not a good idea whereas if you have debt for investment you better be pretty sure that the Returns on that investment will be higher than you have to give back in money in the form of both interest rates and the principal repayments every investment is a lumpsum payment for a future cash flow it's true of all Investments so when you're looking at it and you

say I'm going to make a lumsum payment what are the determinants of those future cash flows the best investments are typically those things that you're closest to and they fall into two types those that affect your living standards like I think owning a house or an apartment or your residence affects your life a lot and the cost of it it is not the cost of it in other words you buy it at a certain price it's not like the thing that goes away and you consume so you'll sell it at a certain price and probably

you'll modify it over a period of time you'll make things and it produces kind of a forced savings that also brings you Joy and brings you a better environment generally speaking so and then the other thing is things that you might know really really well is it your own little business but you could still take the cycle so those are the two things that I think that are good for I should say that one thing when I did that I discovered the three forces that I mentioned I discovered a fourth and a fifth that are

very important and big one is that interestingly acts of nature in the form of droughts floods and pandemics have had a bigger impact than the things I've been talking about in terms of cost more lives or toppled more civilizations those acts of nature so I think that's something only that we have to be concerned about but number five over long periods of time 10 15 20 30 years the most powerful force is man's ability to adapt and invent here's a great depression and here's a war and as you see those things they look like blips

on the chart of life expectancy per capita income and so on so there's a tremendous capacity for dealing with all the other stuff if man can adapt to it well and inventiveness during this period of time should be kind of I think really great because what we're using more and more is types of Technology artificial intelligence and so on the ability to think and collect data and use the computer to help us with that is a very very powerful force now like any Force it's also a risky Force because it can be used for bad

as well as for good I think the world will evolve we will have these Cycles in the world so that's what you see you see these cycles and then you see Evolution through those cycles and adaptation and so I expect that but I would say there's the probabilities I gave you before you know that concern me a lot will be unknown we have a lot of potential and a lot uh things to worry about I think we're in an era of that money as we know it which is a Fiat money is being devalued and

it's going to change the dollars R is going to change and that alternatives are going to compete with that so like I wouldn't want to own money when you own a let's say is in the form of a debt instrument so you're going to get paid back in that and I think it'll have a negative real rate negative buying power and so on in almost any currency and they're all competing so they're all devaluing essentially and so money is about the medium of exchange and a storeold of wealth that is portable and works in most

countries and now we'll find out what those things are I mean gold is an example of one of those and crypto is an example of those I think we're in a kind of a who knows kind of phase new things come along and I think they'll compete people will start to think about how do I have a portfolio of those things that are widely accepted that I can trans and that maintain buying power there's challenges to that like when you have a lot of volatility in it it means that oh my God my owning it

is more risky than my not owning it and so that drives money into sort of other things but anyway we're going to struggle with that and you're going to see digital currencies in different countries and so on and I honestly don't know I don't think one thing wins out I do think that um a lot of U the crypto like all markets they go through phases and there's kind of the bubble phase where it goes up a lot and everybody believes it and everybody's bought it and then you have the adjustments and so on I

think there's too much emphasis in it because the total value you know of Bitcoin or even the cryptocurrency is comparable to the value of Microsoft one has to think when one thinks of assets I would rather think of that the whole array of assets than to think about you know just who is it going to be that crypto Bitcoin one I think people could be too concentrated on that and I think that could be dangerous diversification is my key