Ray Dalio warns of a six-stage civilization collapse cycle, where rising debt—like the U.S.’s $34 trillion—and dollar demand risks trigger crises, mirroring 1930s democracies turning autocratic amid irreconcilable divisions. He cites 60% of Americans below sixth-grade reading levels and violent polarization as stage five’s warning signs, advocating budget deficits under 3% via tax hikes or cuts while urging personal resilience: earn more than you spend, save, hold gold (5–15%), and raise civil, educated children. The episode frames systemic debt and CBDCs as potential tools for control, but survival hinges on adapting to inevitable disorder before it escalates. [Automatically generated summary]
We spoke last year in exactly this place, and you outlined in part kind of the cycle that you see in civilizations vying for supremacy of the world.
And not everyone, I think, kind of bought into your views on this, and you were derided as a Jeremiah scaring people and everything.
A year later, you have a new summary of ideas that you've been formulating for a long time out this week, and about 18 people have sent it to me.
And so I think we've reached a moment where people are ready to hear what you're saying.
So if you wouldn't mind outlining in whatever detail you like the cycle that you see that countries go through and where our country, the U.S., is in that cycle.
They borrow if they can earn enough money to pay back.
The system works well.
They create productivity.
They create opportunities, the capital markets and so on.
That's the monetary system.
And the way that works in the cycle is that when there's no debt, such as in 1945, we start a new monetary order.
There's no debt.
There's a system.
And it builds up over a period of time.
And it's a mechanics that when incomes, when debt service payments rise relative to incomes, it squeezes out other spending the way it would do for you as an individual, the way it would do for companies, except governments can print money.
But that squeezes out spending, and that becomes a problem.
And then you also have a supply-demand problem.
So when you have a new monetary system, which the United States had the new monetary system, and the dollar was the world's reserve currency, then you can sell a lot more of the debt.
So there's a supply and a demand, right?
And so when that builds up and everybody's, one man's debts are another man's assets, and they build up holding a lot of dollar-denominated debt, and then they sell a lot more debt, then there's a mechanics of that supply-demand.
And then when you have politics and world politics, geopolitics enter into it, that monetary system is more at risk for those reasons.
We'll get into that.
But the first force of these five forces is the mechanics of this process, which is the monetary system.
The second is there's a domestic political order.
All countries have an order, a system, and all these orders change and they evolve.
And of course, that is connected to the economic system.
And so when you get large wealth and values differences and there's a sense that the system isn't working for them and there's greater polarity, there's the emergence of populism, like in the 30s, you know, the left and the right.
And there's that populism gets to the point that there are irreconcilable differences.
In other words, the lack of willingness to compromise, the lack of willingness to accept loss, losing one's vote and so on.
But fight and win for me at all costs.
Like in the 30s, four democracies chose to be autocracies because the polarity was so great and the willingness to go along with that democracy system ceased to exist.
So that dynamic has happened throughout history.
And then the third is the geopolitical order, how countries work relative to each other.
What's the system?
And after World War II, we created a system, a multilateral system, in which it was in some ways naive, but it was very different than existed before, in that by being multilateral, having a United Nations, a World Trade Organization, a World Health Organization, a World Court, and all of those, the idea of being representative and they would make decisions in a certain rule-based system was the path.
And of course, the problem of that is that any system has to have its enforcement.
And if the system as a whole, a multilateral system, is not consistent with the interests of those who are the most powerful, power rules.
And so you have the dynamic of the breaking down of that order, right?
So we're breaking down the monetary order in a very classic way.
We're breaking down the political order in a very classical way.
We're breaking down the geopolitical order.
So those orders, we have to recognize throughout time, all of those orders have changed.
There's never been a time that they haven't changed and haven't broken down in their issues.
And they're getting back to how they were in some ways in the past.
Number four is acts of nature.
Drought, floods, and pandemics have killed more people than wars.
So you can't ignore it as a big influence.
And number five is the inventions of new technologies, particularly, you know, fabulous new technologies come about.
And they're important not only for prosperity, but they're important in wars.
You know, whoever wins the tech war wins also the economic and the geopolitical war.
And so there's that dynamic.
And that dynamic is when there's rising powers challenging in existing powers.
There's no court to go to.
There's no way of resolving that.
There are tests of these powers, and we're in a power type of dynamic.
Now, when you understand that that dynamic works through time and you get down to its individual symptoms, in other words, there's in my book, Principles for Dealing with the Changing World Order, which I wrote about five years ago, I took and I broke that cycle into five parts of the six parts of the cycle.
And like a disease, you can see the symptoms in those parts and you could see it progress and you could see the choices that exist at those stages.
So when you're in a different stage, the leadership has a difference stage.
And all I wanted to do, whether it's in that book or in our conversation here today, is to try to let people see that.
And I'm just a practical investor, right?
I've been for 60 years, I've been a macro investor.
So I have to bet on what the future is going to be like.
I place financial bets on that.
And now I'm at a stage in life that I want to pass that along.
So I hope that we could talk about or look at that in a dispassionate way to say how does the machine work to produce that dynamic.
In the second factor that you described in this, the political factor, you pointed back to the very fraught decade of the 1930s, and you said you had four democracies become or revert to autocracies because of the partisanship that became unworkable.
They couldn't reconcile and so they became autocratic.
But they, you know, Caesar and the Senate and being staffed in the Senate.
Plato wrote about this.
I think it was like 350 BC, he wrote about the cycle in the Republic.
In other words, democracies and the challenge of democracies where you vote and so on, but then there's the wealth gaps and the rich gaps and then who has the money and then the not willing to vote and then there's the power that changes.
So tribalism, whether it's political or ethnic, but when people square off into tribes and they have no common ground and they have no hope of reconciling or compromising, then you're getting a new system.
You either get in the fight and fight, pick a side and fight for it.
Throughout history, this is true.
Pick a side and fight for it.
Or keep your head down, or in some cases, flee.
You know, people leave.
They go from, you know, immigration.
Think about how all the immigration largely has taken place.
There's some hell taking place in there, and then they move to someplace else where there's not.
Here we are in the UAE, okay?
A lot of people are coming to the UAE because they're fleeing, in a sense.
So there's that dynamic.
And so you can see many, many, many symptoms.
Like there are things, you know, when it gets violent and when you get killing too many people, then you start to cross the lines, you know, like maybe in Iran.
But just back to the political, one last question.
Is it ever resolved?
Does the system ever stay intact when you get to a point where people just don't want to compromise at all or even live in the same place?
Have you seen any example of where people sort of decide, wait a second, let's enter into power sharing and pull back before this gets violent or we get a king?
In some places, sometimes in dynasties and so on, but they're not often, what happens is there's a reversal or a fixing by somebody who can not, who's strong enough to deal with the issues.
For example, we have a debt issue.
We have all of these other issues and can bring people together.
But there needs to be almost, Plato would say, the benevolent despot.
In other words, there's somebody who can stop the fighting and be smart and impose the disciplines that are necessary.
For example, there's a financial discipline.
How do we deal with the debt and all the supply demand and so on?
Can we raise taxes?
Can we cut spending?
What are we going to do to bring about a budget balance or not a budget balance, let's say a deficit of 3% of GDP, which would sustain the set of circumstances?
What is that financial discipline?
What is that way of working together so we do not do each other harm?
Because we are at a point, let's say, as we come to the next midterm elections, you know, and there's a significant probability that the Republicans would lose the House and talk of even could be the Senate.
Now when you go after that and you imagine what the conflict can be like, how will that conflict work?
Will it be rule of law or will it be a win-at-all cost?
And as that win-it-all cost and what that means, Is there rules?
Is there playing by the rules?
You know, that dynamic.
So this thing is repeated.
It's not easy to get to that point because you have to deal with, you know, how do we stop fighting with each other and how do we do the right things to get strong?
So where are we now, given the five factors that you outlined, where is the United States, or even really the West, will include Europe in this very familiar cycle of rise and fall?
In my book, I show 18 measures of health having to do with education, military, reserve currency, a number of measures that show strength.
What is the level of strength?
And the United States is the strongest power which has been in relative decline and experiencing these conflicts.
And that's measured.
If you go in the book, Principles for Dealing with the Changing World Order, you'll see a number of charts.
So I don't want to just pronounce it that way.
I just want to say that like if you were to take education and you take scores, piece of scores, and so on and statistics, you will see that there are rising powers, there are declining powers, there are large wealth and values differences.
And we are in what I call stage five, which means we are sort of at the brink, but not over the brink.
In other words, we're not, there's a capacity to it's before a period of great disorder when there can be a monetary breaking down of the system.
You know, what is money?
We should talk at some point.
What is money and can money be an effective storehold of wealth and what happens if it's not?
And so we are at what I would call stage five in a six-stage cycle.
The sixth stage is when there's a breaking down of these orders.
We're not there yet, but we are close to there and headed in that type of direction.
Well, from the monetary point of view, it is that the demand for the reserve currency is not sufficient to meet the supply.
So what that means is you see a supply-demand problem.
You produce a lot of supply and the demand's inadequate.
And all things being equal, there will be a rising long rate while the central bank is trying to hold that down by easing the short rate and shortening the maturity of the debt that it sells.
Okay, that dynamic.
And that then the currency, these debts and the currency, falls relative to the non-fiat currencies, in other words, like gold.
In other words, you are seeing a movement by central banks and countries to hold gold as an alternative reserve currency, partially because of that supply-demand situation and partially because they worry that there may be a payments problem.
And the payments problem, like it happened in Japan prior to World War II, you had an economic problem and the United States sanctioned, essentially, didn't pay the Japanese their debt, the money in terms of that, like a debtor-creditor problem, and they didn't make those payments.
Much like Russia, you know, they basically took control because they have the ability to take control of the treasuries and other things.
And so there becomes more of a reluctance to hold that money as that and a movement more into the non-fiat currency, which is gold.
So in other words, other countries perceive a risk in holding dollars because, well, for lots of reasons, but one of them is like if the United States government at the time doesn't like you, they can grab your dollars.
So you may not feel secure about holding Treasury bonds, both for two reasons, because you could be sanctioned, or you also because there's a supply-demand problem.
So you start to see the movement in that direction.
And then, of course, it's also in that situation, governments want to control their supply-demand.
So they might establish foreign exchange controls.
They might do certain things like that.
But they also feel vulnerable.
The United States can feel vulnerable if they can't sell enough of those bonds to others and if the demand isn't, because then interest rates would have to rise because of supply-demand, too much supply relative to the money.
So if foreign countries don't want to buy your debt and your central bank decides we're going to print more money and buy our own debt with it, which is what we're doing, wouldn't the people doing that stop and say, wait a second, this sounds like an electric windmill.
Or you print the money and you make up the difference.
And so since the breakdown of the monetary system in 1971, that was when there were too many claims on gold and we had a system attached to gold.
And because they were in August 15th, 1971, I remember, well, I was clerking on the floor of the New York Stock Exchange after college before I went to graduate school.
Richard Nixon gets on August 15th, Sunday night.
He gets on the television and he says, we're not going to allow the conversion of that paper money into gold.
And we're not going to, you won't get your gold.
I mean, I walked on the floor of the stock exchange the next morning.
I thought this is a big crisis.
And what they did is they essentially printed it, and then we had the stagflation of the 70s.
But I was very surprised.
And I found out I didn't never threw anything like that before.
I studied history.
I found out they did the exact same thing in March.
Roosevelt did the exact same thing in March of 1933.
It's what you do is you give more money and credit.
And what happens is to get out of it, because then you make it easier to pay the debt.
You make like in 2008 or 2020, you give the money, okay, and you give the credit and you fund it and you make that, but that makes the debts go up again, okay, until then you reach the point where the debt is squeezing on the expenditures and you have the supply-demand.
So that's why you have these big debt cycles, you know?
And celebrating it is one of the darkest things this country's ever done.
We agree completely.
So when you switch your cell phone service to this American company, they'll donate a percentage of your monthly price plan to a pro-life, pro-family charity that you choose.
There's no better way to prove what their real values are than doing that.
No one would do that unless they meant it.
All their plans are under 50 bucks, and you can keep your existing number and your existing phone if it's compatible.
Charity Mobile is a pro-life company serving pro-life customers and supporting pro-life causes, and it's done it for more than 30 years.
Visit charitymobile.com/slash Tucker.
Use promo code Tucker to get a free phone with free activation, free shipping, and a free gift with every new line of service.
So I think even people who are not really interested in monetary policy or macroeconomics feel like there is a point at which this doesn't work anymore.
Well, because of that, my last book, my most recent book, put out about, and it gives me a little less than a year ago, is called How Countries Go Broke.
But it is that dynamic of the squeezing on the spending and the supply demand.
And then you start to see it where, as I was saying, the long rate goes up while the short rate comes down because the central bank's pushing the short rate down.
And then they shorten the maturities of the debt.
And then the central bank buys that.
And then the central bank, now it owns all these treasuries.
And then the central bank starts losing money because they own the treasuries.
And they're going up.
So they have to produce the money and credit to keep that rate down.
And they lose more and more money.
And that dynamic then doesn't stop the change in the capital flows.
That's why you, and then traditionally, in all of these cases, you see a move to the hard money, the move to gold, okay, as we're seeing.
You see that dynamic in terms of that move to gold, and then it starts to run its course.
So it's very much like, think about what happened from 71 through the 70s, produces more stagflation.
And then at some point, the inflation problem or the devaluation of money problem becomes such that the central bank then tightens money and so on in the Volcker years, 1979, 80, 81, 82.
So the pendulum swings.
Think about it this way.
In order to have a balance, a successful economy, a successful capital market, since one man's debts are another man's assets, you have to keep interest rates not so high that they crush the debtor without having them so low that they are bad for the creditor.
So you see these cycles.
When we had zero interest rates and negative real interest rates, what you saw was massive creation of credit and money and borrowing and so on.
And then you had that cycle.
So that's what the cycle looks like if you have losses.
And then you also have under those circumstances, classically, the weakening of the central bank's control, or I should say the strengthening of the central government's control over the central bank.
In other words, when these things happen, then they can't be at odds.
And so there is greater control by the central government of this.
If you're the president of the United States or you are the leader in that country and you're in this kind of a monetary crisis, it's like anything, any fight.
You don't want the internal fight.
You want to get control and there's a fight for control.
So we're living in a world today in which there are fights for control, right?
So again, though, at what point do we know the system is just broken and this experiment, which began post-war 1945, has like reached its end and we need something?
Medium of exchange, it's logical that China is going to have much more of a medium of exchange type of reserve currency because it is right now the world's largest trading country.
So they have the history of foreign exchange controls.
Would you trust it's anti-wealth protection?
You know, this is not, that's not their great track record of nothing.
I'm going to protect your wealth.
Even private property and how it works in China is a new concept relatively, and it's something that they're wrestling about.
You can't own land, you know, you can't own property.
So the storehold of wealth element is going to be very tough for them to sell.
So the world does not have what you want as a currency, as a reserve currency, other than gold.
It's just a default, right?
Because it's a debt.
And gold is, you know, like they say, it's the one asset you can have that's not somebody else's liability, meaning you have to get money from somebody else to do it.
I think all around, not only in related to gold, but all of the things I think people get used to.
What's credible to them is what they experience and the norm that they have at that time.
And so much that's happening, I hear people say, I'm shocked by.
But the only reason they're shocked is because they become used to that, right?
If you were traveling through time and you went before 1971 and so on, and you saw history and you saw the universality of money and gold and how the whole system worked repeatedly over time, you would understand there's that dynamic that's taking place.
I think people pay too much attention to the spot price of whether is the spot going to go up or down and whatever.
And what they don't do is think, if I didn't have any view on gold, what amount should I have in my portfolio?
In other words, if you did a portfolio construction exercise and you said, what is an effective diversified portfolio and what assets should I have and what amounts in that?
Because gold is a very effective diversifier and also a protector of this.
when the rest of your portfolio does poorly because let's say the 70s being a good example or the 30s being a good example, during those times, it's a diversifier.
Okay, so the optimal amount to have for an individual or a central bank might be different, but an individual would be, depending on what's in their portfolio, between 5% and 15% of a portfolio.
And so what I would say is if you approach that question that way and you think, what should I have, you should have what we talked about before, a year ago, I guess, and so on.
You should have that particular amount somewhere in that neighborhood, depending on what your portfolio is like, because it's an effective diverse virus and it is a money.
When the traditional money does badly, this money does well.
When the traditional money, which gives you an interest rate, then it's the reverse.
So that's the thing that I would try to convey to people.
Okay, do you have some of that?
What's the amount that's your comfort level, but have some?
If you were running the United States or a country like the United States in its current position, what would you need to do to protect your country in the midst of these changes, some of which are inevitable, some of which maybe aren't?
Like, what are the steps specifically that you would take to help your country?
Yes, but I would say to every, I've said to legislators, I go down to Washington and leaders of both parties, and I said, it's like being on a ship and everybody on the ship is headed to a rock.
And everybody knows that if you have a deficit of 6 or 7% of GDP, you're going to have a supply-demand problem.
And I have the conversations, and by and large, this is the agreement.
And I don't care whether you turn left or you turn right in terms of that, but do not hit the rock.
And what if I would do is I would take a 3% pledge.
In other words, say I will get it down there.
And if I can't agree on how, I would do it proportionately with three things.
I would proportionately with taxes spending.
In other words, if you raised taxes by 4%, if you cut spending by 4%, and you lowered, which would lower interest rates because it improved the supply demand and it would also convey the message that it's being dealt with, you would also lower the interest rate on the debt.
And those two things would begin to get it to approach about a 3% budget deficit and so on.
But doing that would require, would be politically impossible.
So I have these conversations, and the answer is, you know, like, Ray, you don't understand the world of politics.
If I'm there, I have to give at least one of two pledges.
The pledges, and probably both.
The pledges is: I won't raise your taxes and I won't cut your benefits.
Okay?
Taxes, you know good.
So there's a big move here primarily to try to grow your way out of it.
In other words, again, you know, stimulate fiscal and monetary stimulation and hope that that produces, perhaps with the new technologies and so on, that's the idea, enough income growth and so on so that this moves toward that 3%, which is, in my opinion, a not likely occurrence.
And then there's 60% of Americans have below a sixth grade reading level.
So that you take that sixth grade.
Okay, now, how are you going, you still have to deal with the nature of that dynamic of how it comes.
So the question is, what is the amount of productivity converted into income?
How does the government get that income to deal with its debt so the holders of the debt get an effective real return and don't have the problems?
How does that happen in a politically acceptable way?
There are lots of things that make that very, very difficult.
I want to say something about wealth and wealth taxes, which is, I think, worth understanding.
There's a big difference between wealth and money.
And I want to just highlight it.
Wealth is very easy to create because it's almost accounting.
What I mean by that is I could put out a raise $50 million, or individuals can raise $50 million at a billion-dollar valuation, and they will call that person's a billionaire and that there's a billion dollars more wealth.
It seems like it's such an obvious headline, seemingly logical thing to do, right?
In other words, everybody would say, wait a second, all these people are having all the wealth, and they're not paying any taxes on their wealth while this is going on.
Okay, we need to go where the money is, right?
So it seems like that without then, you know, the full understanding of those things and how to do it in a managed way.
But because that is happening and people are moving and not just within the country, but outside the country, do you have any guesses as to or observations about where people are moving?
So clearly in the country, it's Texas, Florida, but Wyoming, but in the world, where are people moving?
Generally speaking, they're moving to where there's civility and opportunity and there's not much fighting.
They want to be in places that have a they go to places that have lower taxation, but also vibrancy.
Texas and Florida, as you say, and here in the Middle East or in places that are also vibrant and things are happening.
And so you could see the patterns of those kinds of movements.
And then the problems that that creates is a hollowing out in those places, the other places, because when they leave, the tax base is, you know, roughly speaking, you know, the top 10% pays about 80% of 76% or something of the taxes.
And so when you lose, let's say, half of them, you lose a big amount of tax revenue.
I see people not worrying and sort of blithely throwing it out, almost like the way they talk about some foreign policy operations was go in and kill these guys, put these guys in, and it'll be fine.
That same attitude I hear a lot about the United States.
Like, well, we're going to have to fight it out at some point.
You've taken a close look at civil wars throughout history.
Well, civil wars and international wars are so horrendous that the most bold people who were trumpets blaring and going into that and so on, everyone came out of it with deep regret.
I mean, we can see while we see it on the news, and you can see that.
But just imagine how horrendous the wars are.
So I think it's a cycle.
Your confidence and your boldness is increased by the distance that you have to your last wars.
Money is that what you can transact currency, short-term deposits that you can assuredly and quickly turn into money.
That's what money is.
And the central bank really controls the money.
And then you could look at who has that increasingly like you could look at M0M1, and you could see money market accounts, and you could see those very liquid, you know, money, safe money, treasury bills, those kinds of things.
But ultimately, it's the central bank because they control the supply-demand.
The trade-off is that people need money, and they may need money to pay debt, and they may need money for whatever reasons.
And so they are tempted, therefore, to create money.
And so you see the coordination between fiscal policy and monetary policy.
So you saw two big waves of large budget deficits and large supports of central banks first under Trump when COVID began and then under Biden when they got in and because he also wanted more universal basic income.
In both of those cases, the government sent out lots of checks.
And that's also a popular thing to do.
Discipline, financial discipline is not what the population typically likes.
Send out those checks, but where does the money come from?
And then the central bank cooperates by buying the government bonds and print money and then buying those bonds.
So it's when they're in the middle, austerity is not an easy thing to have, right?
I think it's and but what happens in the digital currency, of course, it's easy to transact and so on almost and it'll be like money market funds, I think.
The question will be first, will they be able to offer interest?
So there's a debate now as to whether they will be interest.
If they're not able to offer interest, and there will be a debate, probably they won't be, but then they're not an effective vehicle to hold it in because you'll have the depreciation.
You'd rather hold it in a money market fund or a bond, but that's the debate.
There will be no privacy, and it's a very effective controlling mechanism by the government.
What I mean is all the transactions will be known.
All transactions done with digital currencies will be known, which is good for illegal activities, getting control of legal activities, but it also means that the government has a great deal of control.
For example, they can tax that way.
They can take your money.
They can establish foreign exchange controls and the like.
And so that's something that will be an increasing issue, particularly for international holders of that currency, because they might feel, let's say, if you're a Frenchman and they wanted to have sanctions, they could take your money and so on.
For those reasons, I don't, and they're very tiny, I don't think that you're going to see the development of central bank digital currencies to be of a magnitude that it's going to be that big of a deal.
I think that doesn't mean it won't grow, but I don't think it's going to be a big deal.
And most importantly is raise your children well, you know, so that they're well educated and able to be productive and also civil so that they can be effective.
And as I say, there are only three things a country needs to do, and that's the same for the individuals.
You know, raise your kids well so that they're well educated and can earn an income and operate, go to places that work well so that there's civility and productivity and there's opportunity and stay out of civil wars and international wars.