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Economic Crisis: Ray Dalio's Warning for the Banking Collapse, US Dollar & Upcoming Recession

by Tom Bilyeu's Impact Theory

Economic Crisis: Ray Dalio's Warning for the Banking Collapse, US Dollar & Upcoming Recession

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Highlights

Three Major Forces

  • Three major forces influence the current economic climate: debt/money printing, internal conflict, and great power conflict.
  • These forces, alongside acts of nature and technological advancements, drive large historical cycles. Transcript: Tom Bilyeu We've got banks collapsing, US dollars under attack, looming recession. What is going on? How do we step back and think about this moment? Ray Dalio I look at three major forces that are happening now, haven't happened in our lifetimes, but have happened many times in history. Those three major forces are the creation of a lot of debt and the printing of a lot of money to buy that debt, particularly because the government is running large deficits. And so they don't have enough money. So their government has to print that money. So that creation of all of that, that debt and its financial implications and its economic implications is one force. The second force is the internal conflict, the amount of conflict that's internally, largely due to the largest wealth gaps that we've had since the 30s. And that produces populism of the left and the right, particularly when there are financial difficulties. The third is the rising power, challenging the existing power, largely in the form of China, and to some extent, Russia. So let's call it the Great Power Conflict, because in 1945, you know, there's this cycle. You have a war and after a war, you have winners and the winners determine the rules of the game. And then there's this evolution of others becoming more competitive. And then you have a conflict again, um, for who's in control. So we have that dynamic taking place. So those three influences, the financial, the internal conflict, external conflict influences are having a dominant influence. I learned before that when I was surprised, often it was because of things that hadn't happened in my lifetime before, but happened in history because of that reason. I went back and studied history the last 500 years on these cycles. There are big cycles that last about 75 years, give or take about 50 years of rises and declines. And I put that out because I think it's so important people understand that I put it out in a book called The Changing World Order and in a free video called The Changing World Order. So when we look at each one of those, they're important. I also learned in studying history that there were two other influences that were very big, and you could see them. The first was acts of nature, such as droughts, floods, and pandemics. The changes over time in the evolution over time of people's learning and the technologies they make. So I'd say there are the really five big influences that drive everything, and they are the money and debt economic influence, the internal conflict, the external conflict, the nature Influence, and the, let's call it the technology influence. So as we go now into this, it's important. Again, I put it out as a free video on YouTube so that people could see it easily. And when we get into whatever we're going to talk about, it'll be certainly in the context of those things. And since they each affect each other, it produces what I call the big cycle. (via) ^rwhi937242615

Six-Stage Cycle

  • Empires and reserve currencies rise and fall in a predictable six-stage cycle, culminating in war and collapse.
  • The current economic climate includes massive technological disruption, money printing, and rising conflict, indicating a late stage in this cycle. Transcript: Tom Bilyeu My thinking around this moment more than anyone or anything else. It makes it seem so predictable from a historical perspective when you look at that big cycle and you see how it repeats. And so as you went through the last 500 years, one thing that you make very clear in the book is that the rise and fall of empires, the rise and fall of a reserve currency, they go in this six Cycle trend. And the part that I always find unnerving is phase six is basically war and collapse. And so you have that previously dominant power loses its position, loses its status as a reserve currency, and it loses it for predictable reasons in the three forces that you were talking About in the beginning, discounting the fourth force, which I don't think in every cycle you always had, and correct me if I'm wrong, but you didn't always have a pandemic or anything Like that. But the fact that we're living in a moment right now where we have all of them. And so we've got, you know, not only is it a moment of massive technological disruption right now, good and bad, but we've got the money printing, the meme on the internet is money printer Go brr. So we've got, you know, printing because of COVID, We've got printing coming off of printing because of the 2008 collapse. And now we're again seeing this cycle repeat itself. So I've heard you say that we're somewhere in phase five, which is as the empire begins to decline, as you have a rising superpower, as the debt bubble is getting out of control. That perspective was what happened with the svb bank collapse was that something that you knew okay something like that is coming or was that a surprise to you no (via) ^rwhi937242927

Investment Advice

  • Be cautious of holding long-term assets that decline in value while interest rates rise.
  • Consider the risks associated with leverage and the potential impact on your investments. Transcript: Tom Bilyeu They borrowed money to own it And it's going down in value. How nightmarish does that scenario become? So you've got your money locked up in something for a long time, but it's declining in value. Is this like a classic moment where we can look at this big cycle and go, oh, we know where this goes. Like the music has stopped everybody or no, it's a bit harder to judge than that. Ray Dalio I think it's pretty easy to judge on a, um, you know, an intermediate or longer term basis because there there's a choice, right? Um, the, the, the predominant, the big issue is, you know, okay, the government can come in and print the money and give money to anybody they want to give money to. But when they do that, that typically devalues the money. So if, think about it, if you're holding a bond, you know, you got a claim on money. But the claims are too much. So one way or another you're either not going to get back that money in full or you're going to um get back money that's worth less because they print (via) ^rwhi937243286

Internal Conflict

  • Historical patterns suggest that escalating internal conflicts can force individuals to take sides, even moderates.
  • Ray Dalio's advice emphasizes prioritizing the quality of human interactions during times of conflict. Transcript: Tom Bilyeu So this is where this gets really breathtaking. So you've talked a lot about this idea that there are things you even mentioned at the beginning of this episode, there are things that have not happened in our lifetime, but they happen Over and over and over. And so it is very easy for me as somebody born in the 70s to think, oh, war isn't the thing that happens in the U.S. It's something that happens elsewhere. Populism isn't something that happens in the U.S. It's something that happens elsewhere. But it does happen. We're seeing it ratchet up right now because of that. I heard you once say, and I think this is really important for people to understand about the internal conflict. In fact, you and I bumped into each other in Dubai, and I was saying, Ray, given everything that's going on, how do I think? How do I think about where to live? Whatever. And you said, Tom, the only thing that matters is how people are with each other. And for whatever reason, it really hit me that time what you meant by that. And I understood the importance of this conflict. And what I heard you say previously is that in the French Revolution, it was the moderates that got the guillotine. It's like you are forced, because I consider myself very centrist in nature and you find yourself as things escalate being forced to take a side, which the French revolution one gave Me pause. (via) ^rwhi937244470

Safety and Diversification

  • Prioritize safety and liquidity in investments by holding cash and considering hard assets like gold or Bitcoin.
  • Diversify your investments and avoid excessive leverage to mitigate risk during economic volatility. Transcript: Tom Bilyeu Let me run you through how I'm thinking about this moment, the questions that I'm asking myself. And then if you don't mind, help me correct the approach that I'm taking to this. So whenever we get in a moment where there's really, we're at the, what I see is the end of stage five. I don't know if you would agree with that. So this is where just again, to reiterate, so we've gotten over our skis on debt. The Fed is going to try to print their way out of this. All that does is create inflation. They try to break the back of inflation with high interest rates, but so many people got themselves into debt in the good times on variable interest rates, or that they bought long on Something like a bond, where it devalues based on what happens with the interest rates. So as the interest rates go up, either people just can't make their interest rates payments or the debt that they were holding goes down in value. Okay, so you've got this moment where a lot of people are about to lose money and a lot of people are going to be very uneasy. And you've got the political divide that's continuing to escalate, escalate. We saw the last election cycle here in the US where people stormed the Capitol. It was a very sort of unnerving moment. And now it's like, well, things weren't nearly as bad then as they are coming into the 2024 election. So I start thinking, okay, what is the safe move? And if I'm honest, Ray, I start looking at where do I live? So is there a move to be made within the U.S.? And so I start looking at places that feel more secure for the way that I think about the world. Or I start thinking, do I become a more globally mobile citizen? Is there something that I should be thinking about there? I've got a lot of my money in cash. And then one thing that we didn't talk about, which we probably should, you mentioned the word hard money. And so hard money, I'll give my layperson's definition. And then if any of this is inaccurate, please let me know. But hard money being something that has intrinsic value. So gold, precious metals become something that I start thinking more seriously about. Now, I'm what I'll call a digital native. So I think about Bitcoin is something on my radar. I know that you're maybe not a fan. But anyway, that's how I'm thinking about the world. I'm trying to be in cash. I'm not trying to be in anything long. I have Ray Dalio. I have zero leverage. I don't play with leverage. Even when the money was free, basically, I didn't take on any leverage because that's the one thing that scares me. So safety, safety, safety is how I'm thinking about things. Now, I don't exactly know how to diversify well, but that becomes another part of how I look at this. And you've got the all-weather strategy that I know you've tried to articulate for people. So safety first, if I to to sum up my stance everything (via) ^rwhi937275189

Diversification Strategy

  • Diversify investments across 10-15 uncorrelated assets to mitigate risk and maximize returns.
  • Limit individual holdings to a small percentage of your portfolio to avoid overexposure to any single asset. Transcript: Ray Dalio Diversification of good, you know, and just as you point out, what happened was, and by the way, those returns are not correlated with the stock market or whatever. So they were stock market, bond market. They're uncorrelated. So they were effective diversifiers in portfolios, which almost all go up and down together. And this was diversification. And so it was loved by investors, institutional investors, and so on. And the thing, and as you point out, what I learned from, you know, basically this punch in the face mistake, okay, this painful mistake, is I learned how to make good money without having Big loss. I knew I learned how to improve my return relative to my risk. And I learned that the holy grail of investing is 10 or 15 good uncorrelated return streams. Like, okay, you get that and you will, I don't know have a similar path to the path i've been fortunate enough to have and so that's what i want to pass along to people you know like uh you Go into the covid year the one year that i that we lost i don't know it's 10 to 13 percent or something was 2022 because covid came along i didn't have COVID in our system. We had other things that, so that was it. And, um, and so, um, there's, uh, you know, something comes along all the time for, for anything there, everything has its time. And so you put your money in any one thing, you know, you could think okay movie theaters are good and then you get covid or your cruise lines are good and then you get covid and you know oh Whatever it is is good well it's good sometimes but there's always something that always is going to mess up the one thing so you don't want like in my opinion you don't want more than 10 Percent of your money in anything and you want it you know probably you don't want more than seven and a half percent of your money in anything. And they want to be good, different things. And that's the message I'm trying to convey. Hey (via) ^rwhi937275190

Dollar Decline

  • The decline of the US dollar as a reserve currency is similar to historical declines of other reserve currencies like the British pound.
  • Factors such as debt monetization, weaponization of sanctions, and declining share of world trade contribute to this decline. Transcript: Tom Bilyeu Uh, so you've got the BRICS nations, uh, for people that haven't heard that acronym before, Brazil, Russia, India, China, and South Africa, uh, are getting together. And I know this has been going on for quite some time, so I don't know if I should be overly paranoid about that in this moment or not. But again, going back to those indicators that point to a transition from phase five to phase six, do you think there's anything that we can prepare for as we look at the big cycle, as we See this particular moment with the assault on the dollar? Is there anything in the big cycle that can educate us on how to deal with this moment? Ray Dalio Just all happens over and over the decline of the british pound as a reserve currency and before that the decline of the dutch gilder as a reserve currency all happened for the same reasons Uh which is um you know two things are going on first of all they're holding all of this dollars and the stuff that we talked about is going on. And then also there's the weaponization through sanctions of the dollar. In other words, the United States' greatest weapon to use as distinct from its military weapon is sanctions. And so sanctions mean you freeze other assets, you freeze assets. Those assets are the bonds. And, um, so, um, that happened with Russia and there are threats of it with other countries, China and so on. And there's kind of the thinking, well, if I hold the bonds, can I, uh, be, can that happen to me? And then why am i transacting in this other third currency rather than transacting directly so for example the united states uh share of world trade has declined and china's share of World trade has increased to become greater. And so if two countries are trading, let's say Saudi Arabia is trading with China, why do they buy, why do they go to the dollars in order to do that? Um, you know, uh, no good reason to go to the dollars and, and, you know, and they don't know that then they're worried about holding the dollars because they might get sanctioned. More of those transactions taking place in other currencies. And then the usefulness of the dollar as a storehold of wealth changes. It's like, think about it in the most fundamental way. Everybody wants a medium of exchange and a storehold of So in other words, if everybody's using the dollar in world trade, then you want to save in dollars because you say, okay, now that's The thing I spend in and I save in the dollars. But over time, as the share of world trade goes down, why aren't they denominating in who, like China has a larger share of world trade. Traditionally, the countries that have the world's reserve currency have the largest share of world trade and the largest share of world capital flows. And because the United States has declined, and also there's a worry about that, holding it because of sanctions. I mean, just imagine how the Chinese must feel about having a lot of money in treasury bonds. You know, like, I would be worried that I would like be treated like Russia would be treated. It's not something I would want to hold as, you know, a safe asset. And other countries like who might feel that they can get sanctioned. And for all those reasons, they're less inclined to hold. And when we when we call dollars, we're really calling is dollar debt, because you don't hold, you hold dollar debt. And that's a, what is a debt? It's a promise to receive currency. So, okay, so now getting out of those things and transacting in other currencies seems to be the safer thing to do for those countries. And so that's the dynamic that's taking place. So it's not an attack on the dollar. It's like, I don't want to hold those things. And so very similar to on the British pound, you know, what happened is the British had the war and they were the most powerful empire ever in the world. And they had World War II and they came out of World War II financially debt, a lot of debt. And who held the debt? All these countries held the debt because that was the residual from that. But they had a problem. They had a debt problem. And so they needed to print more money because it was too much of a squeeze. And then you had, so it deteriorated. Then they you know they sort of said please hold my debt please hold my debt they went to commonwealth countries the part of those that were in the former british empire and then you had The suez canal incident where um there's sort of a a war and everybody realizes well hey wait a second, that British Empire ain't the British Empire and they're heavily in debt. And then they say, I don't want to own that debt. And there went the British pound. So that's just how the mechanics work. (via) ^rwhi937275191

Understanding the World

  • Understanding historical cycles and cause-and-effect relationships is key to navigating the world effectively.
  • Focus on fundamental principles and simplify complex information to gain a clearer perspective on current events. Transcript: Tom Bilyeu A lot of sense okay so in terms of chunking in terms of understanding where we are in the cycle um one thing that i'm thinking a lot about is as we go into the 2024 election um i've heard credible People say that they think china is going to make a move on taiwan in the sort of chaos of the division that we have here in the current global superpower do you see that as a logical move Ray Dalio On the chessboard for china is that something that seems plausible to you um i have um very good contact um so i have close contacts of on both sides and um and and so i'm just wanting to say Rather than just throwing out opinion. My opinion is that there's a political situation in the United States that it's really the issue of how much the United States pushes the issue in Taiwan that makes it risky because there's A move for, let's say, hawks or some to defend Taiwan. So let me just give you the facts if there is a i'm going to give you a little history okay please um taiwan was part of china um and around 1840 foreign powers came into china and they wanted To trade and do things with with china and china didn't want to do that and so around that time um they had the opium wars You may have heard that in history in which the Chinese at the time Said, I don't want trade. You don't have anything that I want. So that they would have this trade and whatever, and then militarily won and took over large parts of China and took control of that. And in 1895, there was many foreign powers. And in 1895, takes Taiwan. Okay, fast forward. You go into World War II, and after World War II, the winners of the war get to divide up the world and said, who gets what? And Taiwan was given back to China. That's 1945. Then they have a civil war. Um, oh, as usual, the left and the right, they fight each other. And so the capitalists get kicked out by the communists and they go to Taiwan and they control Taiwan. Okay. So everybody agrees that Taiwan is part of China, but they argue who controls China. The ones in Taiwan say, oh, we control China, and the ones in Beijing say, we control China, but everybody agrees with that. 50 years ago's a that's a big issue in their mind because it's part of china and it's been told to them that it's part of china taiwan's part of china and but it but they the um capitalists Uh which is called the guam and donk they are living in taiwan and and they're not controlling it so henry kissinger um first makes the um gets together goes to china and deals with reunification And then nixon follows and um and there's this argument and they reiterate that Taiwan is part of China. Everybody agrees on that and that there should be peaceful unification of China. And that goes on 50 years now and brings it up up to where we are today okay uh so a red line for china is if the united states um or taiwan says taiwan should be an independent country that Would produce a war. And everybody knows that. All those in government would know that would produce a war. This is a big thing for them. You know, in other words, they call that period of time 100 years of humiliation. It was taken, it's promised back, and whatever, it's in their mind an indisputable reality. Now we're in a situation in which the United States, and particularly some congressmen who are more hawkish, say, good chance they will say, we will militarily defend Taiwan and then Go on and sell them more military equipment. Um so it's very very close to saying i will um it's a separate state so we're very very close to that particular issue so what will come um don't believe China is going to initiate a move To take control of Taiwan. Unless the United States crosses that line, pushes that line. (via) ^rwhi937279356

Navigating Global Dynamics

  • To navigate the world well, focus on basic principles, human nature, and financial dynamics.
  • Simplify complex topics to their core elements, and understand cyclical patterns in history. Transcript: Tom Bilyeu What are the things that you think people need to understand about the world to navigate it well? And I'm asking this now at this moment, because hearing even how you answer the question of China, if I had to guess what you're going to say to my question, I would say it would be people Need to understand human nature. People need to understand finance. People need to understand. Ray Dalio I think you're making it too complicated. Tom Bilyeu Oh, give it to me. Ray Dalio I think people… Need to understand um the basics the fundamentals and the story that repeats over and over for and why it occurs history okay yeah and and understanding the cause effect relationships In it right nobody you can't expect somebody to understand all the things in finance and you don't need to you don't have to all the things in human nature and psychology you don't need To okay it just comes down to kind of pretty much simple basic stuff that repeats in a cycle for for the certain reasons that's why i try to make it in the simple entertaining videos right I i put three videos together um how the economic machine works in 30 minutes principles for success in 30 minutes and the changing world order and it's in 40 minutes and these are just Basics if you understand that, like, you know, what makes a healthy society? You know, we boiled it down. You don't need to know a lot of complexity in order to understand, you know, like, how do you raise your kids? Do you spend, you know, it all kind of comes down to those kinds of basics. And so you need to understand those, I think. (via) ^rwhi937279357