Lex Fridman Podcast - #251 - Ray Dalio: Money, Power, and the Collapse of Empires

The following is a conversation with Ray Dalio,

his second time on the podcast.

He is a legendary investor,

founder of Bridgewater Associates,

author of a book I highly recommend called Principles,

and also a new book called Principles for Dealing

with a Changing World Order,

that looks at the geopolitics of today,

especially US and China, through the lens of history,

providing a fascinating model

for the rise and fall of empires

that can be applied to the analysis of our world today.

This is the Lex Friedman podcast.

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And now, here’s my conversation with Ray Dalio.

When you look at the history of the world,

as you have done in your new book,

Principles of Dealing with a Changing World Order,

what is more important, more impactful, money or power?

They go hand in hand.

They support each other and they compete with each other.

Those who have money have power, a certain type of power.

That power has to do with all that they can buy,

but it also has the ability

to influence those with political power.

And so you see this throughout history,

this symbiotic relationship.

You know, for example, between the royal families,

the nobility, and the church.

So you see that group of people

supporting each other in various ways,

and then wrestling around with each other

for the money and power among that group.

So the dynamic that’s quite classic

is you could look at the parties in power

back in the 16th, 17th centuries.

You would look at royal families, nobles,

and the church, if you’re in Europe,

and then you would look at agricultural land,

and there was a certain dynamic.

And that varies over time, it changes,

as those people get thrown out and technology changes.

So when we evolved, when the society evolved,

so that it would produce goods and services,

and you have something like the Industrial Revolution,

the first Industrial Revolution, you have machines,

and you have the talent of people that are off the farms,

and then you have a struggling for power.

You see that power mix change.

And so we don’t see that same power mix anymore,

but you still see the same dynamic.

You see those with money,

dealing with those who have political power

around those assets that are considered most valuable

to particularly the productive assets that produce money.

And political power is usually centered around nation state,

so the major locus of power is the nations.

Yes, in 1668, after 30 years of war,

there was the development of nation states.

Before then, it was really the development of countries

as we know it, that there were borders,

and that within those borders,

those who had control got to control it,

and there were not to be intrusions in those borders,

and that’s how we established the nation state.

And then, of course, within each country, there is levels.

There is a central level,

and then there is typically a province

or state level down below,

and then there’s a municipal level,

so they each have different levels of power,

and it’s the coordination of those

that determines how the country is run.

You write that the, quote, archetypal big cycle

governs the rising and declining empires

and influences everything about them,

including their currencies and markets.

The most important three cycles

are the ones you mention in the introduction,

the long term debt and capital market cycle,

the internal order and disorder cycle,

and the external order and disorder cycle.

Can you describe this big cycle?

There are two orders.

There is an order, by order I mean a system,

how the system works.

So there’s an internal order,

that is the internal governance system,

and it’s usually set out in a constitution

or some agreements, and then there’s the world order,

how the world system.

So for example, in 1945, at the end of a war,

which is basically a fight for determining the world order,

the winners of the fight got together

and created the world system as we now know it.

In 1944, they created the Bretton Woods Monetary System

that determined the money, pretty much,

and because the United States won

and had 80% of the world’s money,

gold was money then, and it had 80% of the world’s gold,

and it was half the world’s economy,

and it was the great military power,

the order was built around an American world order,

so that the United Nations was in New York,

the World Bank and the IMF were in Washington,

and they built that new order.

So classically, you have a war

to determine whose rules we’re following,

and then you have the new order being constructed.

After that, there is usually period

of extended peace and prosperity.

Peace suits prosperity, and so there’s not,

and the reason you have the peace

is because no one wants to fight with the dominant power.

You know you’re gonna lose, you’ve surrendered.

There’s been the surrendering.

They carve up the world,

they say what it’s gonna look like,

who’s gonna control what,

and then you come into that period of peace,

and then prosperity, where then there’s a working together.

Usually, at that point, you’ve wiped out a lot of the debt,

you’ve wiped out a lot of the issues,

the class warfare and so on,

and then there’s good working together.

So those great periods,

such as the Industrial Revolution in the late 1800s,

or what we’ve experienced in the post World War II period,

are peaceful and prosperous periods

led largely by the dominant world power.

Over a period of time, since really 1500,

and maybe before, but really 1500,

when the Dutch invented capitalism,

and what I mean by that,

they invented the first capital markets,

the first stocks and the first stock market,

that since then, capitalism has been an effective tool

for building wealth because it got resources

into the hands of inventive people.

That’s when we moved from agriculture

to the importance of inventiveness of people,

they got resources, and then they built that prosperity.

In that process of doing that,

they create wealth gaps, naturally.

Those who make a lot of money make a lot more

than those that don’t,

and it also produces opportunity gaps

because, for example,

those who earn a lot of money have that wealth,

they have the power to educate their children

in a way that others don’t, and the gaps grow.

And also, the debts grow at that time.

When they go around the world with their competitiveness,

they earn a lot of money.

So for example, the Dutch, the Dutch Empire,

learned how to build ships that would go around the world.

A key ingredient of this improvement in this cycle

is the improvement of education,

and by education I mean the skills that come from education,

but also civility, the ability to deal well together.

So the Dutch invented ships that could go around the world

and they had military power,

but they were also a very inventive society.

25% of the world’s new inventions came from the Dutch,

and so as they went around the world,

they also brought their currency,

and they brought their military.

They needed the currency, they paid for things,

and that currency, and then the more that happens,

the more that becomes a reserve currency,

and then they have their military,

so they need their military strength,

and so you see it evolve in all of those ways.

But over a period of time,

as they become more successful and more expensive,

they become more expensive,

and newer countries come along,

like the UK, then learn to build ships from a lot the Dutch

and could do that less expensively,

and also when they become more expensive,

so less competitive,

and also the work ethic begins to change.

They believe that since they’re richer,

they can enjoy life more.

They don’t have to work quite as hard,

and so you start to see the tilt.

Now you start to see the development of the top,

and when you have a world reserve currency,

that allows you to borrow a lot of money

because those who want to save want to hold your money,

and that means that they’ll lend you money,

and so those countries get deeper into debt.

So you see that they gradually lose their competitiveness,

and they get themselves into financial circumstances,

which are not good,

and they have large wealth gaps,

which set the stage for downturns.

And when they have downturns,

the first question is do they have enough money?

And traditionally, money is resources.

So you classically see that the coffers are bare,

that they’re spending more money than they are earning,

and they run out of money in the coffers,

and their granaries are empty rather than stocked

so that they give them the buffer.

And as that deteriorates, that worsens conditions.

And if they have a rival power that’s also challenging them,

they see greater internal conflict over wealth,

and then they have the problems internally

and the problems externally,

which usually results in an internal war or an external war

that leads to the change to the new world order.

And to you, the Dutch Empire is a good example of that.

The British, what are some of the key examples

that you think about in the book

of this process that followed the big cycle?

Well, the leading reserve currency empires,

but it applies to all the empires,

were the Dutch, the British, the American, and the Chinese.

But you could follow the same pattern.

In the book, it was very important for me

to not just use words and concepts

because that’s subjective.

It was very important for me to use actual measurements.

So as you see in the book, you can see every level of this.

You can see where’s the education level,

what is the military power, each one of those,

and you could see them back going over the 500 years.

And so you could see the arcs and the composition

of those arcs, and what you see is really,

in most countries and most dynasties, you could see that.

But you also can see through those numbers

the health of those countries.

Today, there are statistics that are in the book

that show what is the level of education,

what is the level of economic output,

what is the level of military strength,

what is the level of a number of different measures

of strength, so that you can then compare that.

And I think that because they’re objective measures

of strength that you could see change,

that shows the picture of where we are today.

And I think one of the most important things about the book

is that it allows people to monitor

how those things are transpiring.

I think for policymakers,

are your policymakers doing a good job?

And there’s so much subjectivity in that.

But I think it’s very simple.

If those lines on the chart are improving,

if your health index is improving,

then you’re moving toward a better life.

So that’s what the book works like.

Also, it was used to create a model for the future.

In other words, there are cause effect relationships.

Everything that happens has reasons, causes,

that preceded it, that made it happen.

And so by having all those in numbers,

one can see the probabilities of certain things happening.

So that’s what you see in the book.

It’s not just Ray’s interpretation.

I didn’t wanna make it Ray’s interpretation

because I don’t know if I’m right.

Yeah, so one of the fascinating things in the book,

so you have list these 18 measures,

and there’s like a little scorecard

for the countries of the world today.

So let’s say US, China, and Europe,

and what it was 20 years ago,

and looking at the change from 20 years ago,

and that’s another indicator, the change itself,

to see where things are headed.

Maybe can you comment on, from a score perspective,

how is US and China doing?

And in the 18 measures, what are some measures

that stand out to you as particularly important

to think about today for the United States, for China?

Well, there are a number.

Financially, what you see in the United States

is that we’re borrowing a lot more money,

creating a lot of debt, and we’re printing a lot of money.

And our capacity to do that is very much,

is limited, first of all,

because when there’s a sale of a bond,

when the government borrows more than it borrows money,

because it spends more than it takes in,

you have to sell a bond.

And the world right now

has a lot of US dollar denominated bonds,

because as the world’s reserve currency,

they sell, sold on them.

And they have very bad returns, negative real returns,

negative real returns significantly, and so on.

So that means that more bonds

has to be sold than are bought.

And that means that the Federal Reserve

is faced with the choice of having to raise

the interest rate to curtail borrowing,

which slows the economy and hurts the markets,

or by filling that difference and producing money,

the debt monetization, which produces an inflation

in goods, services, and financial assets.

So in that regard, that’s the United States’s position.

In China’s case, its balance of payments is better.

China has displaced the United States

as the world’s largest trading country.

In other words, more exports to other countries.

And as a result, it’s economically competitive,

but it doesn’t have the world’s reserve currency.

It’s a real blessing.

So the United States, it has the world’s reserve currency,

but it is risking it because of this imbalance.

So if you look at history,

you see that those go slowly,

but when they go eventually, they go quickly.

So there’s a risk of that financially.

Then there’s the issue of internal order.

So I’m just giving you the major ones,

but I’ll get into some of the other ones too.

Right now, there’s a lot of internal conflict

in the United States, which affects

how well it works.

In China, there’s less internal conflict

because it’s a more autocratic state,

but also they’ve created this bifurcation

of what is political and what is economic

in terms of producing that prosperity.

So if you stay out of the politics pretty much,

and then you’re seeing entrepreneurship,

you’re seeing the finances of new businesses and so on.

And so that internal working,

that’s subject to different people’s interpretations

whether they like it or not,

but the internal conflict in terms of those kinds

of measures is less.

Sorry to pause on that for a second.

So these measures, I guess you don’t want

to sort of romanticize any one measure

or something like that, overinterpret any one measure,

but is internal conflict always a bad thing?

Is it a complicated calculation?

Or do you kind of, the way we think

about these measures that you’ve presented,

we should be thinking like the higher, the better,

the lower, the worse, I mean, of course,

depending on the measure.

Well, in many cases, the conflict that produces

the revolution produces revolutionary changes

that lead to resolutions and lead to new starts.

And so a short term civil war is a hellacious experience.

And at the same time, it can be the transition

to a new beginning.

Also, there are different types of conflict.

Competition, which makes things, makes everything better,

is a productive conflict, whereas destructive conflicts

are not good over the short time.

So that’s how those go.

So within each measure, the story is complicated.

Yeah, but my measures are sort of clear,

meaning how much political conflict,

how much social conflict.

In other words, you can measure conflict,

you can measure fighting, you can measure crime rates,

you can measure lots of different ways of conflict.

So the measures are a composite of different types

of internal conflict.

What are some other interesting measures,

maybe if you can also mention that,

for me in particular, interest is education and innovation.

Yes, the classic cycle, the most important leading indicator

is the quality of education.

Most importantly, broad based education

drawn from the largest population

because you can never tell who the talent is going to be.

So where are they gonna come from?

So for example, if you look at the Chinese dynasties,

the great Chinese dynasties and the Confucian approach,

it was meritocratic of everybody could sit for exams

and so on broad base of drawing in the populations.

And you see that if you go across societies

because that draws on the largest number of population

to get education.

And it also, that creates a reality and a perception

that the system is fair, equal opportunity,

not just one of privilege.

And that helps to create social stability.

But education is not just education in understanding facts

and so on, it is education in civility

of how to behave together.

And so if they’re smart,

they understand how to be productive

because they work well together and they’re productive.

And then that leads to the next stage.

You could see in the lines in the charts, I plotted these

so that you could see in a typical cycle,

you could see that education is the long leading indicator.

And then you could see, as you mentioned,

that what you see is inventiveness and technology measures

then follow and you see then also competitiveness

and world markets follows.

For example, in the early stages of a cycle,

the industries that they go into tend to be very basic

industry because they have cheap labor,

something like textiles and simple manufactured goods

and so on.

But as the education rises,

then they move up the value chain to greater technologies

and so on, which raises incomes and raises productivity.

So yes, those and as you say,

there are 18 different measures like that,

but education and then civility and the inventiveness.

So you see it reflected in who’s inventing what.

And that corresponds then who’s trading with,

who’s a big trading country

and where’s the value of economic output

and what are per capita incomes.

They all follow those arcs.

Yeah, like you said, the fascinating thing about your book,

so there’s philosophy, there’s wisdom, but there’s plots.

Yeah, you can see it.

So it’s not just your opinion.

It’s kind of like you can interpret it in any way you like,

but you’re just giving a lot of your own insights

along with the numbers.

If you were to look at the American nation,

the American empire and the trajectories

looking into the future given these measures,

what is the trajectory that leads to the collapse

of the American empire based on these measures?

What are the concerning indicators

and if those break down further, what does that look like?

Well, all of those indicators are concerning,

maybe except for one, which is technology,

the technology niche, although even in that area,

the United States is improving at a slower rate

than is China for various advantages that they have there.

They put out about eight times as many computer engineers

they have free data and so on, but if you look at them,

so the financial is a concern.

The internal order, disorder is a concern.

Then if you look at education levels,

the United States is in many ways

is losing its educational advantage.

If you were to look at, compare it with China,

if you take general public education in the United States,

it’s deteriorated tremendously

even in comparison to developed countries.

There are scores, PISA scores and so on,

and it’s something like 38th in the world or something

and that was a big plunge, average public education.

If you look at the best universities in the world,

the United States is unique

in having the best universities in the world,

so there are these privileged universities

in the world, so there are these privileged spots

that are, you know, excellent, uniquely excellent.

So when you look at the comparison,

education in China is improving rapidly

and the quantity is a quantity of educated people

in the areas that they’re moving in is greater

and the resources that they’re putting behind it is greater

and so you see the results are greater,

but it’s sort of along the lines that I’m dealing with.

If you were to follow through

in terms of actual productions,

I think you know in terms of technologies,

there are some areas that the United States is in a lead

at the moment, there’s some areas that China’s in a lead,

but China’s gaining very quickly.

When I first went to China, 1984,

I would bring $10 calculators

and I gave them away as gifts to high ranking people

and they thought they were miracle devices.

Right now, in terms of areas like quantum computing

and AI and you know, many areas,

you have a race going on

and so if you take the trajectory of the competitiveness,

not just look at the current level,

you have a situation where they’re improving

at a much faster rate.

This is all good for the world if the world can get along.

And the main thing I think is,

how do you have a healthy world

and how do you have a strong economy

and how do you have a strong situation is be strong.

The United States is war is with itself.

That’s the main war.

You know, it’s very simple in history.

Be financially sound, earn more than you spend

and be strong in these ways

and pretty much everything will take care of itself.

But you make it sound simple of course

because there’s a momentum when things degrade,

when the education system degrades,

when you start borrowing,

when I mean, all of these indicators,

once they’re going down, there’s a momentum to it, right?

So it’s hard to reverse it.

Right and there are circumstances that you’re then in.

For example, indebtedness.

You know, it’s politically desirable

for those to borrow money and spend

because their constituencies only look at what they get

and when they get a lot, they don’t pay attention

to the balance sheet and how much debt is on the books.

So it’s always better to borrow, spend

and then leave the cleanup to the next guy.

And so you inherit a lot.

You inherit it as a new president enters in

or new legislators, they have a lot of debt,

they have a broken down infrastructure,

they don’t have enough money to fix that.

And so that’s the lay of the land

that the prior generations put you in

and there you are.

And so that’s right.

It’s difficult because when you start to think,

okay, what’s healthy?

Well, earn more than you spend.

Well, that’s not so easy

because you know, what does that mean?

Go earn more?

I mean, okay, that’s not so easy.

Spend less?

That isn’t gonna work.

So now what do you do?

Okay, you have this debt that you then monetize

and that’s why it’s classic.

So yes, that’s why these cycles occur

because what has created before,

what happened before created the lay of the land

that is then increasingly difficult to deal with.

So what can great leaders do in this moment?

I mean, maybe my sense is leadership is crucial here.

So for example, to do very large projects

and invest in the education system

that sort of try to fix the fundamentals

or maybe invest more and more into the innovation

and the development of new technologies and so on.

It feels like that just doesn’t happen organically.

So you have to have strong leaders

that convince the populace

of the importance of these ideas.

Well, I completely agree with your list.

What we have is a situation

where everybody has their opinions

and they have to sort of get them exactly right

and they all fight with each other

about whether their opinions.

So the most important thing is that we become bipartisan

so that we don’t and we get over our differences.

I would have a bipartisan cabinet.

I would draw upon both members of both parties,

the moderates who are going to be able to work together.

So as then we have one country

and then we deal with those in a means

that works for the majority of the people in the middle

rather than the polarity.

I think our greatest risk is in not being able to do that.

So I would say that’s a paramount importance

because we have the resources,

wealth, real wealth and science

and everything has never been better than it is.

But the notion is that it has to work

for the majority of people

and we have to keep it being productive.

So that group has got to calmly and knowledgeably

work together so that they increase the size of the pie

and they create broad based prosperity.

So that is a paramount importance.

Whatever they do, if they do it that way,

I can say I’m happy about

because that other alternative

is the really scary alternative.

The scary alternative,

the different ways it has evolved throughout history,

some of it has led to wars.

What are the future trajectories

that lead to a potential war with China?

Cold war or hot war?

Is this something you think about?

Is this something you’re worried about?

Yeah, I’d like to talk about both wars.

So the war with China, as I say,

there are five kinds of wars.

There’s a trade war, technology war, geopolitical influence

war, capital war, and military war.

As far as military war goes,

I think it’s only a Taiwan issue, but that’s a big issue.

And we could talk about that for a minute,

but those others, they’ll be rough competitions

and we’ll have that type of evolution over a period of time.

That’s what that war looks like.

Taiwan has been, for a long time,

a sovereignty issue to China.

And it has its roots

in what’s called the 100 years of humiliation.

From the 1840s to 1949, foreign powers came in,

took advantage of China, they had the opium wars

and such times, and that represented

the 100 years of humiliation.

And Taiwan represents their sovereignty

and their important thing.

And 50 years ago, starting 50 years ago,

there was an agreement that there is one China

and Taiwan is part of China.

And that there would be peaceful reunification.

The peaceful reunification hasn’t happened.

And in their view, that’s a very big issue.

And so it’s a big contentious issue.

And that could produce a military war,

could produce a military accident,

could produce, it’s a very tense situation.

And if we had a military war, God help us

because of the capacity in all different new ways

to inflict harm on each other.

But anyway, that’s that.

If you don’t have that military war,

you’ll have the competition between those other kinds of wars

and whoever is strongest in those areas will win.

Where do you put cyber war within the five?

Well, cyber war is a military war.

I’m assuming the type of cyber war that you’re referring to

is that which is used to inflict pain

on the other party through cyber.

So cyber wars, you’ll see cyber war.

You could see space war.

You can see drone warfare.

New types of warfare, not just the traditional

and nuclear type of warfare.

But you could see any of the above.

What are the defining characteristics?

What are the interesting things about Xi Jinping,

the president of China, as a leader on the world stage?

His father was a early leader.

He was himself in the Cultural Revolution in times,

treated brutally.

And during that period of time, it was very, very difficult.

And he came up through the ranks

and he’s a very intelligent man.

When he first came to power,

as you know, they have two five year terms,

and we’re now coming to the end

of the second of those five year terms.

When he first came to power,

he felt that there should be a lot of reform.

And reform meant moving to much more

of a market and open economy.

When that happened, him coming in,

I had some contact with economic policymakers,

but in the circumstances then,

were that five major banks lent to state owned enterprises

and local governments with implied government guarantees.

And so there was not control of that

and the movement to aim more of a market economy.

And the development of markets was a primary

and also the dealing with the corruption issue.

There was a lot of corruption prior to that,

and that was viewed as an existential threat to the system.

So that became the primary objective.

And then as time progressed over those 10 years,

there was a lot of changing in the world,

their financial circumstances,

opening many, many other markets.

They particularly getting money

to small and medium sized enterprises

and developing a lending system

and then establishing controls on it.

So right now there’s a vibrant capital markets.

You can raise capital, you can be an entrepreneur,

you can become a billionaire in the capital markets.

And they developed the markets

to be the second largest capital markets.

At the same time, they had to deal

with their rising debt issue,

which they began to deal with really about four years ago,

when the second largest capital markets

were about four years ago, when the second term began.

And then Lu He became the vice premier

responsible for that and to deal with those issues.

So you see right now that what’s happening

is the dealing with the real estate bubble.

There was a development in real estate, a bubble,

which produced a lot of unproductive lending.

And Xi Jinping said, houses are meant to live in,

not to speculate on.

And so that was wasteful.

So they established what they call three red lines,

which are financial ratios,

that the property developers had to live within.

And that is then causing the adjustments

that are going on now, which in my view are very healthy

because whenever there’s bankruptcies

and so on, most in the public think, okay, that’s a problem.

It’s in many cases really a cleaning up of bad debts

and bad practices.

And so that’s what’s going on.

So that’s, let’s say economically.

At the same time, there is the changing relationships,

the changing world order, the changing relationships

with the United States and other countries,

which is becoming much less cooperative

and much more warlike, much more confrontational.

Those two things, the domestic debt problem

and the domestic, has led to what’s called core,

what they call core leadership,

which means a leadership more around him

that is less challenging

because they believe in history

that during very difficult times,

a more centrally controlled decision making process

lends itself better than to a more fragmented

political contentious project.

And that’s basically what’s going on now.

You said it very eloquently,

but you mean the leadership is surrounded by yes men

and there’s a lot of centralized control.

That characterization is much more black and white

than it really is.

But it leans towards that direction.

Like for example, of the standing members

of the Politburo, four are more allotted,

three are less so.

You have to understand that it’s kind of

a collective leadership at the top.

And then of course, there’s just jockeying for power

in a highly political sense at the top.

But no one leader can be successful

against all those powers at the top.

So it’s very politically negotiating.

It’s very much more like if you put in the United States

the Democrats and the Republicans

and they had to be in the same government

and they work it out.

It’s kind of something like that.

And so that’s that struggle, but it’s an internal struggle.

Where do you put the importance of some of these ideas

at the founding of the United States

when now we’re talking about that at the context of China,

the freedom of speech, freedoms?

What China is doing with the central management

of a lot of things, it’s enabling a lot of growth,

but it’s also limiting people on the very basic level

in terms of freedom.

The kind of freedom that I think can lead

to entrepreneurship, to starting new businesses,

to having big dreams and chasing those dreams

and then creating totally new things in whatever the space,

maybe in technology, in business and whatever.

How important is that as a metric for society?

Well, they have a view, which is the idea of a dialectic,

which means that two things are at obvious,

that everything comes with pros and cons

and two opposites exist.

And you want the benefits of those two opposites

and how do you deal with the benefits of those two opposites?

So let’s say you want the capital markets

because it gets money into the hands of the entrepreneurs

who are motivated, they build fortunes,

and that drives an economy to do very well.

And at the same time, it produces the other problems,

the wealth gaps, the other problems,

the debt cycle that we’re talking about and so on.

And Deng Xiaoping, how do you reconcile communism

and the market economy and the capital markets?

And he famously said,

it doesn’t matter if it’s a white cat or a black cat,

just as long as it catches mice.

In other words, if it works in making the country richer,

then that becomes the objective

and then they move that along.

So there are these conflicts.

And one of the leaders described it to me as follows,

because it’s confusion and it goes back

over a period of time.

There’s a hierarchy and it’s an extension of the family,

he described it.

And he said, the United States is a country of individuals

and individualism, and that is its vibrancy

that we see the individual rights to speak up,

the individual protection of the individual,

individual property rights and all of those things

is of paramount importance.

And we build our organization.

That’s why democracy is from the bottom up

or even a company, we’ll get together

and we’ll be partners to prosper together.

That is the American approach.

He was describing that in China,

it’s an extension of the Confucian family, essentially.

And so it’s almost like there’s a hierarchy.

And so what they think about is the common good,

not the individualism.

So for example, if they want a high speed rail

to go from one place to another,

and that’s best in the common good,

then the individual protections

that would stand in the way of doing that

would be of secondary concern.

So that notion of controlling.

So for example, what they’re doing with video games,

they control what type of video games

and how many hours a day kids can be on video games

operating in that way,

because they believe that that’s good for the society

and that’s very controlling.

In the United States,

I think probably most parents would say, leave it to me.

And it’s a matter between me and my kids.

The same thing has to do with data.

In other words, in the United States,

who controls the data?

Does the company control the data?

Do you individually control the data?

And so the inclination would be to figure that out,

but nobody would say that the government

is going to control the data

because of our inclination of really anti government control.

In China, it would be that the government

will control the data

because that’s going to be best for the society.

And it depends who you trust.

But that’s, so that difference in philosophy

is very much at the heart of that.

As far as your question in terms of effectiveness,

it really is, in China’s case,

it’s how you balance the things, right?

So what they’re attempting to do

is to create a lot of freedom and creativity

in areas that are not political, let’s say.

And so you see a lot of entrepreneurship,

you see a lot of product development,

you see a lot of creativity happening in that way.

So the stereotype that you don’t see creativity happening

is an old stereotype,

whereas a lot of creativity is certainly happening.

And the system can work well

if they can achieve that kind of balance.

It’s proven to have worked well.

Since I started going there in 1984,

per capita income, real per capita income,

has increased by 26 times.

The longevity rate has increased by 10 years.

The poverty rate has fallen from 88% to less than 1%

in terms of basics like starvation and things.

And if you read history, Plato’s Republic,

he talks about the cycles, democracy and autocratic

and the benevolent despot and all of that,

each has their own vulnerability.

The vulnerability of democracy,

which has been a remarkable, remarkable system

and I don’t have to extol the benefits of it,

but the vulnerability of it has always been

the internal conflict that produces itself as anarchy.

In World War II, four democracies

chose to be autocracies

because there was internal disorder

and there was the belief, will somebody bring about order

and get control of the situation?

That was in Germany, Italy, Japan and Spain.

They were parliamentary systems

that turned themselves over to that.

So both systems have vulnerabilities.

I think the main thing that we need to think about

is those vulnerabilities.

Democracy is an amazing system

because the adherence to the rules and the system

and the checks and balances is quite amazing

and it gives it a flexibility to change without civil wars.

But there has to be the respect of the rules.

And when you see something like

they will not accept elections

or they will not accept rules, history has shown,

when the causes that people are behind

are more important to them than the system,

the system is in jeopardy.

So we have a situation that’s very much like that

in terms of, let’s say, the 2024 elections.

I believe that there’s a very high chance

that neither side will accept losing, for example.

And so we have that kind of a situation.

So one would hope that one could rise above

the disagreements and rely on the system

for resolving disagreements.

Because if that doesn’t happen, then we have our own chaos.

So the kind of the trend that started in 2020,

or I mean, I suppose it’s been there,

it’s been growing.

One representation of this internal disorder

has been the growing trend of being skeptical

about the results of the election.

Well, it started before that.

There was the emergence of population

before President Trump was elected.

He was basically elected as a populist

because there was a large percentage of the population

that felt that the system didn’t work for them.

And he tapped into that.

And he was largely elected as a populist leader,

first populist leader in a developed country.

And so populism began then.

And that was a battle of one group against the other group.

And so since then, it’s been like that

and it continued to grow.

You’ve mentioned the vulnerability of democracy,

that internal disorder is the vulnerability of democracy.

What’s the vulnerability of a system like China?

Maybe one way to say is put China aside

and look at history, look at Soviet Union.

What’s the vulnerability of a communist type system?

Well, I’ll call it both communist and autocratic,

depending on how much autocracy,

is that it lacks flexibility.

It lacks the ability,

but I should deal with them differently.

In other words, there’s the economic system.

The economic system threatens motivation and productivity.

So communism or socialism has to be done in a way

where you can threaten productivity.

Capitalism has, and what I mean by that,

I mean free markets and capital markets

have been an effective way of allocating resources

and also creating the incentives and the resources,

providing the resources for the inventiveness of new ideas.

And so if I compare that, what the Chinese have done

to a large extent is to recognize that

and have made a move.

That’s why the seeming dialectic or the conflict

between those two things exists.

But anyway, that’s it.

As far as an autocratic system,

rather than one man, one vote from the population up,

the risks of the autocratic system

is that there’s enough discontent that arises

that the system doesn’t have the flexibility

and that rather than bending, it breaks.

That’s the big risk.

The notion of trying to control a population

if there’s that, rather than giving it the flexibility.

So that would be the big risk of the autocratic system.

What’s the human, because you mentioned

like the top gets bigger with the empires

and you start to get things for granted.

Is some of this just human nature?

So the concern with China, with autocratic nations,

the concern with the Third Reich, the Soviet Union,

was that fundamentally at the individual level,

the humans involved at the top,

they start becoming, they’re starting to lose touch

with reality in a way that no longer makes them.

I guess that’s the representation,

the flexibility that you’re referring to.

Well, I mean, in a democracy, you could change.

You can go as far left or as far right.

You can change the leaders easily.

And so the people don’t become,

they pretty much only have themselves to blame.

And one of the problems of that

is they may not choose the best leaders,

but they have that flexibility.

So vote and you get what you wanted.

In the case of the autocratic, let’s say leaders,

and then the movement from democracies to autocracies,

what you see normally that movement

is that one of the systems is not working.

Let’s say the democracy is not effectively,

everybody’s arguing with each other

and nobody’s getting anything done.

You know, like Mussolini,

the trains are not running on time.

And that would be the example,

geez, this place has gotten chaotic.

Will somebody get to control?

And then you get the autocratic

and then he’s autocratic enough to boss people around.

And then you follow those kinds of orders.

And it’s like maybe a CEO in a powerful company

going around and that could work well

or it could work badly.

Most companies are run as like autocracies in a sense.

You know, there’s the hierarchy and the command economy

and that kind of thing.

And that can work well or not.

But then quite often when you get the populist autocratic,

their personality is something that they want to fight

and they become more nationalistic

and they tend to become more militaristic.

And human nature at that stage lends itself to fighting.

There’s an arc here that when we think of a country

and we say we, and we think of a country,

it’s not true, it’s not like that.

There are individuals who change.

One generation dies and another generation comes along.

And one of those arcs is that the one generation

of the ones who have been through war

don’t wanna go to war and are more happily willing

to abide by whatever the rules are.

As you get farther along into that cycle

and you get a new generation and they forget about wars

and the horrors of wars, then they want to fight.

And so you’re seeing right now the emerging

of fight for right and what that means

is you see it internally, fight where are you

and fight for that thing and they mean fight.

And then externally, fight, are you going to be

the strong one who will fight and win?

And that develops on both sides, this fight and win

and each side is cheering each other on into a war.

But that comes by those who really have not experienced war

because it comes in their part of their lifetime.

Humans are fascinating.

And by the way, human nature has not changed

over the thousands of years.

So it’s so interesting because like in doing this study

and it comes across in the study,

it’s like watching the same movie over and over again.

You know, you see the arc and you see it happen

over and over again.

The only things that seem to change are the clothes

people wear and the technologies they use.

Yeah, and then somebody probably would disagree

with you about the clothes.

Maybe there’s also cycles within fashions.

Maybe we’re not even creative there.

What do you make of Russia and Vladimir Putin?

What do you think about Putin as a leader,

as a human being on this world stage within the context

of the cycles of empires that you think about?

Well, Putin came to power at the failure

of Russia’s last order.

So there was the end of communism

and there was the development of the market economy,

the collapse of the Soviet Union.

And at that time, he was appointed by Yeltsin

who was an alcoholic and had problems managing

and was put into power.

And the conditions in the Russia were,

there was anarchy, there was no money.

It had the classic end of cycle ingredients.

It was broke.

It was people were fighting with each other.

It was in the anarchy.

And that’s when he came to power.

And there were not institutions.

The whole thing had collapsed

and it was not effective ministry of education,

ministry of anything.

And so the idea was that they needed 25 years of stability

and they needed a democracy

and they needed the improvement of capital markets.

So he’s been in that position as I guess I would call him

a semi autocratic leader in that from all indications,

he would respect the democracy and he’s very popular.

He’s won democratic elections

because he’s been a strong leader

and he’s brought peace and stability

to Russia after the breakup of the Soviet Union.

And he’s a strong leader in pursuit of the country’s interest

in a way where Russia is not a significant economic power

but it is a significant military power.

So the issues, and then there’s a strong alliance

between Russia and China now.

So that’s kind of the lay of the land.

And then there are sensitivities.

The Ukraine issue is a sensitivity

because of there are a lot of Russians

who live in the Ukraine

and there’s also the issue of NATO on their border.

So there are those kinds of things

and he has military power

and he has a strong alliance with China.

And I guess that’s my best summary

of what his position is.

He’s a strong leader, popular.

These are not subjective interpretations.

These are objective interpretations.

Yeah, it’s interesting just in this conversation,

you’re not sort of doing the usual criticism

of any one particular system.

You’re looking at these systems

from the perspective of history.

You’re just describing how they work.

It’s often times when you talk about what Russia is today

or what the Soviet Union was or what China is today

is you start to criticize.

Well, they do this kind of censorship

or they do this kind of,

they limit freedoms in this kind of way.

But you’re just kind of describing this

as a nation with ideas, what they think is right.

This is how they hope to get it to work.

This is why it’s working.

This is what’s not working.

Here’s metrics that show that it’s not working.

I think that’s a refreshing way to think about it.

It’s easy though, I mean, you got some criticism

saying that I think China is a strict parent.

Some people criticize these countries for doing,

for violating human rights.

I suppose there’s some people that criticize the United States

for violating human rights.

But what are your thoughts on the world stage today

about some of the behaviors it has governed

in terms of respecting the rights,

the basic rights of human beings?

You described accurately how I just tried to look at this

and how I just tried to look at things in a non,

I don’t want to impute my values on anybody.

I mean, there are intolerable things.

So I’m not saying there aren’t intolerable things.

But one of the great things of being an American here

is that I grew up with all different nationalities,

having all different points of view

and all different religions

and all different ways of operating.

And I’ve come to treasure the fact that that is,

what’s their business is their business.

And then the question is, where do you cross the line

under what circumstances

that others have got to do it my way.

And then when you do it internationally,

the issue of what is a sovereign state,

which as I say in the piece of Westphalia

and you have borders and then when do you cross the line

that my way of doing things

has got to be their way of doing things

or what are the various rights.

And so that’s a very delicate question

or a very difficult question.

And we all have responsibilities to different parties

and we all have different levels of knowledge

about those particular things.

So for example, as an international investor,

I have a responsibility to my investors.

Those who run companies have a responsibility to theirs

of how do they run that.

So if you’re taking Nike or Snickers and so on

and Americans can decide

whether they wanna buy Chinese products

or not buy Chinese products,

we are all faced with those types of choices.

So you have what do you wanna do in your constituency

and you have your choices.

And then beyond that, in many cases,

the issues are quite complex,

like there are geopolitical questions that enter into it.

So, and then I believe that if you disconnected,

if all those entities like myself,

the businesses doing business with China disconnected,

I think that that would be disastrous,

economically disastrous.

And it would also be reduce the understanding

that comes from working together that helps to reduce wars.

And so these are all complicated.

So what we do is, and who makes it my opinion

matters the most?

Why should it be my opinion that matters the most

in making that decision?

So I largely look at the government guidance

that I get not only from my own government,

but from the other governments and I follow the rules.

I’m in 40, we invest in 40 countries.

And we wanna do that in the best way

to provide the diversified portfolio.

And we sort of need that.

Every one of those countries has similar complexities.

There are always one issue or another,

and there’s only so much that we really understand

about all of those issues.

So we rely largely on the guidance that we get.

Yeah, you have to empathize and show respect

to the culture of the place, the way things are done.

You don’t necessarily,

the way you heal relationships between nations

is like you said, you work together.

And that requires kind of to listen

maybe more than you talk.

And I think people in the public sphere

talk a lot about China without really listening,

without understanding much about China,

though one of the things that makes me really sad

because I know how to speak Russian

and I know how much is lost in translation.

It makes me sad that I’ll never really get to know

the Chinese culture because like,

I’ll never really get to know the language,

the literature, just talk to regular people.

It’s not just the government or officials or scientists,

just regular folks, get the culture.

I think if you don’t understand the culture,

just the basics of the human nature,

what people love about their country,

about their family or the kind of hopes they have,

what kind of values they have,

without that you’re not gonna be able to

fully connect with them.

And you have to do that first

to have a chance of building a good world.

I couldn’t agree with you more.

I was very lucky because as I say,

since 1984, so for more than half of my life,

I’ve been going there and the common people

and all sorts of people, and I’ve got to meet them.

I don’t speak the language,

but a combination of through translators

or them speaking English and being in situations.

I had my son go to school, a local school,

and we developed those kinds of understandings.

I think that, but the not wanting

to know the other perspective

is the thing that’s most scary.

Like I’m right now in the middle

and all I want to try to do

is to help mutual understanding.

You’re right, if there were questions probing me,

asking me, what is it?

I’m not on one side or another.

I don’t want to be on one side or another.

I believe that each has their right within there

to approach their different culture in their own way.

So many ways you gave an example.

If they’re not doing harm to others, I mean,

but that issue of trying to understand

is so much better.

That doesn’t mean agree with.

If you are wanting to out clever

and out compete somebody,

it still pays to understand what they’re thinking.

So to achieve understanding of what they’re thinking,

even if you want to go to war with them,

that understanding is the best thing to have.

What we have now is a situation

in which there’s an enemy mentality.

And that means that anything that serves,

seems to be like understanding or conveying understanding,

seems to mistakenly create the notion

of I’m on their side in a war.

And that’s kind of a dangerous thing

because there’s a momentum here to fight.

Henry Kissinger praises your new book

and you thank him in it in the dedication.

What’s your relationship like with him?

What makes him interesting?

Maybe what makes him controversial?

What makes him such a central figure in history?

First, most importantly, he’s unique about seeing things

through all the others eyes.

So if you were, it’s like there’s a chess game.

I mean, I think geopolitics is like a chess game,

but with multiple chess players playing the same game.

So imagine there are six people around

playing the chess game and he could sit in each seat

and he could know how they see it, okay?

And see it in a calm way of how they see it.

He’s unique in that way.

He’s 98 years old and he’s equally able to do that.

And he has a background in which he’s a historian.

So he really understands history super terrifically.

He doesn’t understand economic history as much.

So that’s why to some extent we enjoy having a conversation

because he’s interested in the economic piece he doesn’t know

and I’m so interested in the geopolitical piece

that I don’t know as well.

But anyway, he’s able to do that,

but not only a historian, but a practitioner.

So when you go from an academic to a practitioner

who has that talent to see things through others eyes

in an objective way and to be strategic

rather than just tactical, that’s a very special person

and that’s why Henry is, to me, a very special person.

Yeah, he’s lived a fascinating life.

Just all of the world events he’s been involved in

is fascinating and like you said,

that’s such an interesting skill to have

to consider what are the concerns, the hope, the dreams,

the fears of all the people at the table.

What are they thinking?

I find that people don’t, once again, don’t do that enough

when it’s the obvious thing you should be doing,

whether it’s business deals or political negotiation

or geopolitical negotiation.

I’m often surprised, again, sorry to go to the Russian thing

because I hear Putin talk in Russian

and you start to infer certain intentions,

like not the trivial stuff, like the human being.

What is that human being hoping for himself,

for his country, for his close inner circle,

for the bigger, and I just see that

that’s often just lost in translation.

I just see American leaders talking to Putin

and it’s just not, there’s not a connection.

Absolutely, I know exactly what you’re talking about.

It has never failed that in my listening to a conversation

or even reading a speech and you see then it reported,

inevitably, the reporter picks some headline characterization

that has very little to do with what was really happening

but might be a headline grabber

that’s at some kind of distortion

and there’s a lack of understanding

of really what’s going on.

If it’s okay, let me ask you a couple questions

about cryptocurrency.

You’ve had a few opinions about Bitcoin over the years.

What are your thoughts about Bitcoin today,

its role in the global financial system

and just in human society in general?

Well, the evolution of Bitcoin over the years

is one of the things that has influenced changes in my view.

It has proven itself something like 10, 11 years ago.

Imagine the programming of this and you throw it out

and that’s the idea.

It has not been hacked.

It has operated, it has built,

it has come an amazing way over that 11 years

to be maybe probably the most excited topic

among a lot of people and has been used

and is now has obtained the status of having imputed value.

At the same time, it is one of those assets

that is an alternative money.

I think we’re entering an era

where there’s going to be a competition of monies.

Because of the printing of fiat money

and the depreciated value,

there will be a competition of monies

and Bitcoin is part of that competition.

But there’ll be many monies, not just crypto monies,

but there’ll be central bank crypto monies,

but there’ll be different kinds of monies.

And even monies are things that you buy and sell.

NFTs can become a type of money.

You own it and it’s an investment

and you could say I’d rather own it than own Bitcoin.

Has Ray Dalio bought any NFTs?

Not yet.

But only just because I definitely want to buy NFTs

to just experience them.

Like I think I should produce one and I should.

I should have asked that.

Have you minted an NFT?

You probably should just to know what it’s like.

Yeah, that’s right.

This stuff is happening.

This stuff is real and how it operates.

But like all new real things, some are gonna go

and some are gonna, it’s like in the internet

in the year 2000, pets.com could have been a great,

but maybe pets.com doesn’t make it and who knows.

That’s the beauty of the competitive system

that it’ll evolve and some things will be treasured

and some things will be trashed.

But when I look at it, I think we are in an environment

of what is an alternative money?

A money has two purposes, a medium of exchange

and a storehold of wealth.

And we are looking for, and it’s portable.

And it’s best if it’s recognized in other countries.

So gold is one of those.

So I look at it as an alternative gold,

but I look at a number of things as alternative gold.

And I think that, and gold is still my favorite

because of certain qualities.

For example, you can’t trace it.

In Bitcoin, you can trace who owns it,

where it’s going and so on.

Governments can’t have that ability to trace it and so on.

A gold piece of coin, it’s not connected.

I think not connected has benefits,

particularly in a world where maybe connections

can be more risky.

And then also gold has been for many thousands of years

universally recognized as a source of money.

And central banks, it’s the third largest source of money

in central bank reserves.

And I don’t think Bitcoin is going to serve

those types of purposes and so on.

So for various reasons, I prefer gold to the other,

but it’s a little bit part of my mix.

But then you look at it, it hit, I think 69,000 this year

is the high Bitcoin hit.

Do you think it’s possible, you mentioned gold,

do you think it’s possible it reaches very high numbers,

like one million that some people talk about?

I don’t think that’s possible because the way I look at it

is there’s a certain amount of it.

A certain amount of it, and there’s a certain amount of gold.

I’ll use gold as a benchmark.

The amount of it is worth about $1 trillion.

Total crypto is about 2.2 trillion.

But let’s say Bitcoin, it’s $1 trillion.

If you take the amount of money that is in gold

that is not used for jewelry purposes

and not used by central banks,

and I assume Bitcoin won’t be used for jewelry purposes

or central bank purposes,

that amount in gold is about $5 trillion.

So right now, if you were to have a portfolio

that has gold and crypto, gold and Bitcoin,

it’s worth about 20% of the value of gold.

Do I think it’s going to be worth more than gold

in terms of that mix?

I don’t think it’ll be worth more than gold.

But let’s say it became worth as much as gold.

I don’t believe it will be.

I think that 20% sounds kind of about right.

I really don’t know what the right answer is.

And then there’s the question of what is all of that pool

of money that let’s say gold and gold equivalents

relative to everything else?

Does it go from, let’s call it

six, seven, eight trillion to 16 trillion?

Maybe it could double.

It depends what it is in the world environment.

But basically, if you use gold as a measure,

it just makes no sense

that it’s going to be used that much more.

Am I sure about that?

I’m not sure about anything.

But logically, it seems to me that there’s a limitation

on its price in relationship to other things

that are like it.

Let me ask for your deep financial analysis

on a very important issue.

I just talked a couple days ago with Elon Musk.

He wants to put a literal Dogecoin on the moon.

What are your thoughts about Dogecoin?

And do you think it’ll be the official currency?

How many be reserve currency on the moon and on Mars?

My reaction is that’s cute.

I remember Elon when he first got,

he first got his money from PayPal.

I think he said to me it was,

he got $180 million, $90 million.

He decided to say, why aren’t we going to outer space?

And he wanted to take a spaceship that would be modified

using Russian technology to put a plant

and a watering can on the moon or on Mars, I think it was.

And he said, first life on Mars,

or first life on that as an inspiring notion.

And so then there’s always what’s behind it.

I have a lot of respect for Elon’s ability

to do other things behind it.

And so I would take that as symbolic

and I’d be asking him what’s behind it, what’s next.

And I’m also just on the topic of Dogecoin and memecoin

and there’s some aspect of humor and lightheartedness

that’s really interesting about the way we communicate,

what ideas become viral,

how to captivate people with ideas.

There’s something about taking things too seriously

that somehow slows it all down and it’s interesting.

You’re right.

That’s part of human nature somehow.

So like humor is part of this whole thing.

You’ve talked about the importance of writing ideas down

and you have a fascinating.

Principles in particular.


And you have this really nice thing in your book

where you actually, I mean there’s such a brilliant way.

You have such a brilliant way of highlighting

which parts are extra important and you make them bold.

That’s a brilliant idea.

But let me just ask the high level question

of what’s a good system for taking notes?

Well, I find that almost everything happens

over and over again.

And we’re in the blizzard of these things happening.

And what I found is that if I’m making a decision

that after I make the decision usually

or write at the time,

if I pause and reflect and I write my principle down,

in other words, principle is sort of a recipe,

what would I use to, how would I make that decision?

And what are the criteria around it?

I find that I make it much more clear, it becomes clearer

and it applies to the next thing that comes along,

it’ll be that way.

Because everything happens over and over and over again

and I think people make the mistake

of looking at just the one like it’s the first one.

I don’t know, they have the first problem of this sort

or the first child or whatever it is.

And this has been happening plenty of times.

And so if you have the principles,

I found that that helped me think more clearly about it

and it helped me communicate better, like why.

And so over the years, over the last 30 years or so,

that’s what I’ve done.

I did it originally to communicate very well

with the people I work with.

I set up my company and it was very important

to have good communication.

And then we could debate the principles

and so that’s the process.

I urge people to do that.

There are many excellent decision makers

and I just wish that they wrote down their principles.

When this set, so for example,

we talk about Henry Kissinger and his new book

is gonna come out with a book on leadership.

And don’t just describe the leaders,

describe then what about them were the essential elements

to make a good leader under what circumstances.

And so if we think about that,

then also then you begin to think in a principled way.

And then when you start to think in a principled way,

life becomes, it’s so much easier to make decisions

and it’s so much less confusing

because it’s like coming up on a species

and you say, okay, well, what species is it?

Not just another, it’s a thing.

No, what species is it

and how do I deal with that species effectively?

And so that’s what that is.

And so I encourage people to write it down.

I wish anybody who’s successful wrote down their principles

or their recipes for making those types of decisions.

So the events of interest here happens

over and over and over in similar ways.

As you’re looking for the patterns

and you’re defining the process,

that’s right to respond to those patterns

and you call that the principles

and that allows you to deal with the future effectively.

So like that codifies the lessons from the past

to be able to deal with the future.

What advice do you have for young folks today?

In high school, in college, thinking about how to live,

have a career they can be proud of

or maybe have a life they can be proud of?

Know yourself, follow your passion,

make your work and passion the same thing

while considering the money part

because money will get you freedom and choice

and be able to bank that.

But if you know yourself, feel the pull

and pursue that passion.

And along those lines, by the way,

I found that using personality profile tests

has been very helpful.

I’ve used those for about 25 years

for people to help to understand themselves

and understand each other.

So I created a free one that is called Principles You.

It’s online.

It’s had remarkable, loving people who’ve taken it,

learn about themselves,

but also you can put in somebody else

and it’ll tell you about your relationship with them.

That’s like 30 minutes is a quick discovery,

but the main thing is to understand on your journey,

your hero’s journey that you will have mistakes

and you will have weaknesses

and to understand those, not fight those

because by understanding mistakes,

you will learn not to make mistakes again.

I have a principle which is pain plus reflection

equals progress.

And so that reflection is important to know yourself,

know your pulls, know your weaknesses.

And when you also know your weaknesses

and the strengths of other people,

there are people who have strengths where you’re weak

and you have strengths where they’re weak.

And to be able to work well together

is the most effective way of achieving success.

So yeah, it’s that journey.

And there’s a life arc and there’s a journey

and you wanna make it the best that you can make it.

And it’s like a video game.

It has the challenges and the obstacles

and the learning experiences and the temptations

and all of that.

And the maximizing learning to go where you wanna go

to achieve the life you want is the most important.

That’s kind of maybe a long winded way of saying it,

but to learn, I think I’ll try to say it simply.

There’s a five step process.

Step one is know your goals, know what you’re going after.

You could have almost anything you want,

but you can’t have everything you want.

And so you have to prioritize and you move in that direction.

On the way to your goals,

you’re going to encounter your problems and your obstacles.

So step two is understanding your problems

and your obstacles, identify them.

Step three is to diagnose them

to get at the root cause of the problem.

And that could be many root causes,

but it could also be your weaknesses or weaknesses of others,

but you have to be objective about them.

Once you diagnose them, then you go to step four,

which is to design a way to get around them.

And then after you have that design,

you implement that design.

So you have to follow through and do it.

And you do that, and that will then produce its new results,

which should be better results.

I call this kind of a looping process.

It’s the evolutionary looping process.

And you just keep doing that

and you learn over a period of time

and you move in the direction that you want.

Last question, and you only have one minute to answer.

You dedicate the book, quote,

“‘To my grandchildren and those of their generation

“‘who will be participants

“‘in the continuation of this story.

“‘May the force of evolution be with you.’”

So let me ask, where’s this force of evolution

taking human civilization?

And what in this story that evolution is writing

gives you hope?

Evolution is a direction toward improvement.

And the greatest force is man’s capacity to adapt and invent.

And so you see in the charts in the book,

you see that this upward movement, life expectancy,

health, all the things that we think are better,

you see there’s a chart

and it shows that over a period of time

and you barely see the downturns

from depressions and wars in that.

That is the greatest power.

Man’s ability to invent and adapt is evolution

and that’s the greatest power

and that is what gives me justifiable hope.

And a continuation of that, like we mentioned with Elon,

maybe we’ll become a multi planetary species.

So not only will we keep creating amazing things

here on Earth, we’ll keep expanding out into the cosmos.

My time horizon isn’t gonna have me analyzing that yet,

but I hope so and I agree that that would be

in the next.

So I’m not gonna ask you

for the best financial system on Mars.

I think we’ll focus on Earth for now.

Ray, thank you so much for your brilliance,

for the books you’ve written,

for the works you’ve done,

for the inspiration of millions.

And thank you for spending your valuable time

here with me today.

Thank you.

Thanks for listening to this conversation with Ray Dalio.

To support this podcast,

please check out our sponsors in the description.

And now, let me leave you with some words

from Ray Dalio himself.

Every time you confront something painful,

you are at a potentially important juncture in your life.

You have the opportunity to choose healthy

and painful truth or unhealthy but comfortable delusion.

Thank you for listening and hope to see you next time.

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