"BE CAREFUL! This Is Serious..." — Ray Dalio's Last WARNING

I'm a global macro investor and economics markets politics and geopolitics all matter in my life there have been a number of times where things came along that I never saw before and they surprised me cost me money and then I realized when I studied history that they happened many times in history repeatedly 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 changing 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 uh the prices will change and 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 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 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 in 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 price is and then the higher interest rate you have to pay and the higher debt service costs and also 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 by 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 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 risk of neither party accepting losing the elections is significant 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 regarding Twitter will probably have a greater effect on our society than the decision 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 it's 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 singapor 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 of 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 to 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% 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 in 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 in that 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 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 it 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 grad ually 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 case it happened with the Dutch it happened with the British that because you're so powerful at production you go all around the world and you are the largest trading country in the world

you give more exports than other countries and more trans 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 they 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 decadent 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 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'd 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 cu 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 will 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 work in 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 Incorporated 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 CU 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 we have a war with Russia it's not like the United States is militarily dominant or so and there more countries have become 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 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 health the conation 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 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 access 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 exent the you're 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 could see all those things and you could 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 and Communications that's even polite between the two countries right now these 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 stagflation very bad stag flation because of the Dynamics 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 maybe they don't accept losing an election that there's movement of people to different states that they believe represent them better and there's a polarity developing and the going to different states and that there's not obeying the central government so now it becomes a power game I'm in the business I need to be objective because accuracy is my think 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 one and three I think it's actually probably

higher than that that there will be that kind of a situation and I think it's higher than a one and three I think may be significantly higher that you get into the same conflict and the power internationally 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 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 of chicken it's a very dangerous game and there are other issues globally for example you're seeing these alliances working out and um the United States for various 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 is 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 because any one of those things is really is not normal it's pretty bad if everybody worries they don't have to worry if both sides think about what that's like and say I can't you know we must come together and make sure that that does not happen the best

assets to not 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 own and bonds are not good to own 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 well 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 from 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 its buying power over the next number of years can fall by three or four% a year or if you put it in a risky investment like stocks or something it can fall buy more so but 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 can take care of my family in a worst case scenario then you have the freedom to then take other kinds of risk 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 of 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 not 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 but 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 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 are 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 Killion 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 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 lumpsum 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 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 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 and 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 forces 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 um lot of 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 Dollar's role 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 dollar or let's say isn't 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 and negative buying power and so on in almost any currency and they're all competing so they're all devaluate 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

you know maybe nfts are and who knows 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 and 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 uh 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 o 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 let me start off by I acquired it by an accident because the game that I happened to fall in love with if you learn to play the game well it pays well well I think

that's true with a lot of people who are coming up with ideas and building businesses and so on they got excited about it that does it works well and and then it pays well to me it's a serious mistake thinking that success is measured in such things because money has no intrinsic value okay what does money get you and what do you need now what I want is freedom and the ability to be creative and do that's what I want and money helps me get that it helps me help other people it helps me have

the impact I like those things about it I think that success is having the life that you want to have as long as you're earning more money than you spent and that can be spending very little and having a wonderfully luxurious life I watch a lot of people don't have much money of different ages sometimes young sometimes older they travel around the world they backpack they go to different cultures and different places they can live and attend in the most beautiful nature is available to you or you can be in a hostel or you can

meet in so many different and freedom and so on I think everybody should almost experience that to know that they can have a great deal of freedom without a great deal of money and that status thing is a silly thing okay that's like being hung up on living your life for approvals and so don't get on the track and lose sight that okay what is it that you really want in your life what is a successful life for you it's not measured by how much money you have or how much status you have or almost

that other stuff it's measured and you know like I would say meaningful work and meaningful relationships if you have something as your work that you're into and you're craft and it's a thing you love and you have meaningful relationships I think those are the most important things to to make a rich life