you can only spend money

Ray Dalio built Bridgewater Associates from a two-bedroom apartment into the world’s largest hedge fund, produced roughly $53 billion in cumulative net gains for investors, and was one of the few managers positioned for the 2008 crisis, finishing that year up 9.5 percent while the S&P 500 fell nearly 40 percent. In this conversation with Steven Bartlett he says the classic signs of a bubble are present in AI, then spends most of the interview on the part that actually matters: the mechanics of how bubbles pop, why cash is the least safe thing you can hold, and where the 80-year big cycle has put the United States and the UK right now. You can watch the full conversation here.

TLDW

Dalio agrees with Jeremy Grantham that this is bubble territory, but insists a bubble is a matter of degree rather than a yes or no, and walks through the machinery: a genuinely revolutionary technology, investors who stop caring about price, borrowing against paper wealth, then a rise in interest rates or a tax change that forces people to sell, and the whole leverage engine running in reverse. He stresses the distinction most people miss, that wealth is not money and you cannot spend wealth without selling it, and points to the ease of issuing new stock as a supply-side accelerant most retail investors never consider. The signs he watches are weak hands, leverage, and the volume of new stock being produced. Then he widens out. Three things are converging: the bubble, a large wealth gap that turns into political conflict when the downturn hits, and a geopolitical shift where China is now a larger trading partner than the United States for most countries. That confluence is what he calls the big cycle, roughly 80 years, and he places the US and UK in its decline phase. On money he argues cash is the worst long-term asset because inflation eats it and you pay tax on the nominal gain, recommends genuine diversification across stocks, bonds, property, gold and a small Bitcoin position, and puts hard money at 5 to 15 percent of a portfolio with a preference for gold. On AI and work he says machines climbed from replacing the body to replacing higher and higher levels of thinking, that the share of revenue going to workers is falling while the share going to owners rises, and that anyone in a thinking job is at risk unless they are in the top fraction working in partnership with the technology. His advice for a 16-year-old is not a job title. It is to accept you cannot forecast the future, know your own nature, maximize your ability to learn using AI, and make your work and your passion the same thing without forgetting the money part. He closes on the UK as the classic cautionary tale of an over-indebted, underproductive country that has run out of choices, and on Iran as a mistake that revealed American vulnerability the way Suez revealed Britain’s.

Thoughts

The most valuable thing here is not the bubble call, it is Dalio’s refusal to make the bubble call actionable. He says explicitly that the future is very unknown, that even sophisticated investors struggle to time a bubble, and that people should not be timing anything. That is a strange message from someone with a headline prediction, and it is the honest one. Everything he says about the mechanics is descriptive rather than predictive. He can tell you the conditions that make a pop inevitable and he cannot tell you when, so the only rational response is structural rather than tactical: diversify, know how many months you can survive with no income, and do not put your survival in one asset that can fall 70 percent.

Wealth is not money is the sentence to keep. It explains almost everything else in the conversation. A founder who raises $50 million at a billion-dollar valuation is a billionaire on paper while only $50 million ever actually changed hands. Nobody paid a billion dollars for anything. The moment that person needs cash, whether for a tax bill, a margin call, or higher debt service, they have to convert paper into money by selling, and if enough people need to do that at once the paper price collapses. Every leverage crisis in history runs through that gap between wealth and money, and it is invisible on the way up because collateral values are rising and borrowing feels free.

His supply-side point deserves more attention than it will get. Everyone analyzing a bubble focuses on demand: who is buying, at what multiple, with what conviction. Dalio points out that there is almost nothing easier to produce than stock. When the market wants equity, equity gets manufactured, and the AI founder Bartlett describes raising hundreds of millions specifically to buy distressed competitors after the crash is, from Dalio’s seat, adding to the supply that helps cause the crash. That is not a criticism of the founder, who is being rational. It is a description of a system where individually sensible moves aggregate into the thing everyone is bracing for.

On AI and labor he is blunter than most people with his level of exposure to the industry. His frame is that machines started by replacing the body, moved up through the industrial era, and are now climbing through levels of thinking and reasoning, and his question at the top of that climb is unanswerable in a satisfying way: when both body and mind are replaced, what do you have to sell? His guess is emotion and intuition, and he is honest that this is a guess. The evidence he actually trusts is the revenue split, where labor’s share is falling and ownership’s share is rising, and the observed fact that hiring a college graduate is increasingly more trouble than the alternative. He also dismantles the Silicon Valley reassurance politely. Those making the claim have a strong incentive to want it to be true, and even setting employment aside, the top 10 percent of households hold nearly 90 percent of the stock, so an AI boom that shows up mainly in equity prices widens the gap by construction.

The advice-for-a-teenager section is the part worth rereading. Asked what he would tell a 16-year-old, Dalio refuses to name a field, and the reason is precise: naming a job would mislead them. Coding was the safe answer until it was not. What survives is adaptability, self-knowledge about your own nature, and the ability to use the tools to learn faster than the world changes. It is a less satisfying answer than a career path and a more defensible one. The same refusal shows up in his political analysis. He can describe the mechanics of an over-indebted country with a widening wealth gap, and when Bartlett asks who fixes it, he says he does not know, notes that governments rarely run things well and do not attract the people who do, and admits the cycle makes a big fight more likely than a shared plan. He puts his hope in a strong middle and a bipartisan commission willing to impose shared pain, then immediately calls it a long shot.

Key Takeaways

Dalio agrees with Jeremy Grantham’s assessment that markets are in bubble territory, but frames a bubble as a matter of degree rather than a binary state.
Bridgewater produced around $53 billion in cumulative net gains at roughly 12 percent returns, uncorrelated with other investments, and was up 9.5 percent in 2008 while the S&P fell almost 40 percent.
The bubble pattern is always the same: a genuinely revolutionary technology arrives, people are correct that it will change everything, and then they stop paying attention to price.
The late 1920s were the first time households had electricity, refrigeration, lighting, cars, airplanes, and radio. Everyone was right about the future and still got wiped out.
Wealth is not money. You cannot spend wealth, you can only spend money, which means you have to sell the wealth first.
Raise $50 million at a billion-dollar valuation and you are a billionaire on paper, but nobody ever paid a billion dollars for anything.
Leverage compounds in both directions. Rising asset prices create collateral, collateral creates borrowing, and the same mechanism runs in reverse on the way down.
What typically pricks a bubble is anything forcing holders to convert wealth into money: rising interest rates most often, sometimes wealth taxes.
Higher rates also make bonds pay more than the expected return on equities, which pulls money out of the bubble asset.
There is almost nothing easier to produce than stock. When demand for equity is high, supply gets manufactured, and that supply eventually overwhelms the demand.
Dalio’s bubble indicators include who holds the asset. Weak, unsophisticated hands buying with leverage, including leveraged ETFs, is a classic warning sign.
Falling asset prices reduce spending, which reduces someone else’s income, which is how a market event becomes an economic downturn.
AI companies cannot invest precisely, because nobody knows the revenue. Underinvest and competitors run away, overinvest and you create the imbalance. Either way the dynamic is unavoidable.
Do not try to time it. Sophisticated investors struggle to time bubbles and the future is genuinely unknown, so the correct response is structural.
The security question Dalio asked himself throughout his career: how many months, then years, could I be fine if no more money came in?
Cash feels safest and is almost guaranteed to be the worst long-term holding, because inflation of 3.5 to 4 percent eats it and you still pay tax on the nominal interest.
The core menu is stocks, bonds, property, gold, and Bitcoin, and they move against each other for different reasons. Diversifying properly reduces risk without reducing return.
Balance the allocation by volatility, not by equal dollars, because stocks swing far more than bonds.
Bear markets in stocks can take them down 60 to 70 percent, which is the reason not to concentrate your survival money in them.
A home has non-financial value: it is your environment, it forces savings, and it is usually taxed more favorably.
Gold is the effective diversifier because it tends to do well precisely when everything else does badly. It was money until 1971 and remains the second largest reserve currency.
Dalio recommends 5 to 15 percent of a portfolio in hard money and prefers gold to Bitcoin within that bucket.
He holds about 1 percent of his own portfolio in Bitcoin, and calls it a type of money that cannot be printed but that technology can still hurt.
His objections to Bitcoin are quantum computing risk, monitorability, taxability, and the fact that central banks want private transactions they control, so they will not hold it in size.
Russia’s experience is his illustration: other assets were confiscated, the gold was not.
Gold’s appeal is that it is often described as the only financial asset that is not somebody else’s liability.
If you have no assets, your only asset is yourself, so the question becomes how you sell yourself for a better income.
The same skill is valued wildly differently across industries. Driving an Uber and chauffeuring a billionaire are the same skill at different prices.
Whatever you buy, the top of the market commands multiples of the average price. Ten percent more skill or effort can be worth twice the money.
Technology has climbed from replacing the body (oxen to tractors, laborers to factory machines) to replacing higher and higher levels of thinking and reasoning.
The people who benefit are the capitalists with the ideas that replace the workers, which is visible in the falling share of business revenue going to labor.
College graduates are struggling to find work in a relatively good economy, partly because training a graduate is more friction than getting the same task done with AI.
Unemployment spikes come far more from a bursting bubble than from the slow technological substitution running underneath it. Both are happening at once.
Roughly 61 percent of US adults own stock in some form, mostly indirectly through retirement plans, and only about 20 percent hold individual shares directly.
The top 10 percent of US households hold almost 90 percent of the stock, so an equity boom widens the wealth gap regardless of what happens to employment.
Dalio is skeptical of the Silicon Valley claim that unforeseeable new jobs will absorb everyone, noting the people making it have an interest in the conclusion.
When both body and mind are replaceable, what is left to sell is emotion and intuition, and society will have to work out what that is worth.
For the foreseeable future the winners are people with exceptional human intelligence working in partnership with artificial intelligence.
Past a basic level, there is very little correlation between money and happiness. Dalio’s own favorite thing, being in nature, costs almost nothing.
His principle for young people: make your work and your passion the same thing, and do not forget about the money part.
It is not the most intelligent or the hardest working who succeed, it is the most adaptable. That is the answer to what to study.
He refuses to name a career for a 16-year-old because naming one would mislead them. Coding was the obvious answer until AI coding tools arrived.
Know your nature, not just your preferences. Dalio built a personality profile test used at Bridgewater and put it online free as Principles U.
The big cycle runs roughly 80 years, about a lifetime, and the last reset was 1945. It resets the monetary order, the domestic political order, and the geopolitical order together.
Inside it, the shorter cycle from one recession to the next has averaged about six years, give or take three.
The technology line rises through all of it, because you do not unlearn what you have learned. The cycles are the debt and conflict oscillations around that trend.
Capitalism creates differences in wealth, which create differences in opportunity, because rich people can educate their children well. That is the gilded-age-to-robber-barons pattern repeating.
Dalio has studied 500 years of these cycles across many countries and insists the markers are objectively measurable, like a physical exam.
His placement of the US and UK right now: late in the cycle, in the decline, marked by over-indebtedness and loss of power.
Connecticut is among the richest states per capita, and 22 percent of its high school students have dropped out or are failing with absentee rates above 25 percent. The incarceration bill now exceeds the education budget.
If the system does not work for the majority, you have a problem. Below a certain floor of education, housing, and healthcare, people become liabilities to a society rather than assets.
Inequality is not inevitable under capitalism. Singapore and the Scandinavian countries maintain a floor.
On wealth taxes: they force the wealthy to sell assets to pay, which is itself one of the things that pops a bubble, and valuing illiquid wealth is administratively very hard.
Even taxing top wealth at 100 percent would not raise enough, because the group is small. And when people leave, governments respond with retroactive taxation, exit taxes, and capital controls, all of which have happened before.
Transfer payments that fund consumption rather than productivity undermine the society doing them. Tax rises need to be paired with investment in education and productivity.
Governments do not run things well and do not attract the people who do, so handing them money and expecting efficiency is the wrong model.
What is needed is a strong middle, because as long as an extreme left and extreme right are at war, everything gets worse.
His proposal is a bipartisan commission of people who understand economics, producing a difficult plan with shared pain, the way the constitution was produced. He calls it a long shot.
The UK is the classic cautionary tale: over-indebted, underproductive, out of choices, six new prime ministers in seven years as each promise fails to materialize.
The trap is mechanical. You cannot raise taxes without people leaving, cannot cut benefits without hurting those already suffering, cannot borrow because lenders lose appetite.
The exit is a major restructuring: a mixture of printing money, which produces inflation, and restructuring debt by lengthening maturities.
For a 21-year-old founder, Dalio would exist without borders and locate near what he calls renaissance states with education, civility, capital and vibrancy.
A smart rabbit has three holes. Do not tie yourself to one country, because the best place today may not stay the best place.
He sees the UK as a difficult place as a whole, with genuinely stimulative pockets sitting inside an unhealthy system.
The rules-based order is a theory from the end of World War II. When it conflicts with power, power wins.
Dalio expects a regional world order rather than a single dominant power, with the Americas as one region and the Asia-Pacific around China as another.
He believes China does not want to occupy or control other countries, and that its top-down system is an extension of Confucian family structure. Its aims are not to be cut off, not to be harmed, and to compete.
He expects Taiwan to be resolved through pressure toward reunification rather than a great US-China war.
A Chinese blockade of chips leaving Taiwan, even threatened for five days, would crash world stock markets. That is non-military power.
China is now a larger trading partner than the United States for most countries, which is the concrete measure of the power shift.
Each country’s strength will be determined internally: how it educates its population, spends its money, and manages itself. The US risk is erosion from within.
Dalio calls the Iran war a big mistake, primarily because it exposed the limits of American power the way Suez exposed Britain’s.
Asian allies are recalculating. US bases were supposed to be a counterbalance to China and may now be liabilities, because a public worried about gas prices and casualties cannot sustain a long war.
Occupation does not work. Ninety million Iranians will still be there whatever happens, which is why the Chinese approach through the art of war and the tribute system reads differently.
Dalio’s stated method: as a global macro investor, be as accurate as possible and refuse to let biases interfere.
His 30-minute How the Economic Machine Works video has been watched roughly 140 million times, which he treats as evidence that complex ideas can be made digestible.

Detailed Summary

Is this an AI bubble

Bartlett opens by relaying Jeremy Grantham’s view that this is the biggest investment bubble in American history and that a peak very soon would be consistent with the historical data. Dalio’s answer is that Grantham is right, followed immediately by a refusal to leave it at a conclusion. He says he is at a stage of life where he would rather explain cause and effect relationships than issue verdicts, and what follows is a mechanical walkthrough. A bubble is when prices rise a lot, companies do very well, and then it collapses, with consequences for markets and for the real economy. 1929 produced the Great Depression. 2000 produced the dot-com bust. The pattern requires a genuinely revolutionary technology, because people have to be right about the future in order to be catastrophically wrong about the price. He points out that the late 1920s were the first time households had electricity, refrigeration, indoor lighting, affordable cars, airplanes and radio, and everyone correctly understood that the future was going to be extraordinary. What broke was the relationship between profits and prices, amplified by borrowing.

Bartlett plays the mechanism back with a worked example: buy a share valued at $100, borrow $50 against it, watch a shock force everyone to sell, and find yourself holding something worth $25 against a $50 debt. Dalio confirms it and adds the piece that makes it inevitable rather than merely possible. Nobody building AI can know how much revenue is coming, so a company either underinvests and gets outrun by competitors or invests enormously without precision. Both paths lead to the same imbalance. He then adds the supply side. There is almost nothing easier to produce than stock, and when a market wants equity, equity is manufactured, which is exactly what the AI founder Bartlett describes doing when he raised hundreds of millions in order to buy distressed competitors after the crash. The signs Dalio watches are the degree of the thing, not its presence: leverage, weak hands, unsophisticated money entering via leveraged ETFs, and the volume of new issuance. The prick is usually anything that forces holders to turn wealth into money, most often a rise in interest rates as central banks respond to inflation, occasionally a wealth tax.

Wealth is not money

The distinction Dalio keeps returning to is that you cannot spend wealth. You can only spend money, and to get money you must sell the wealth. His example is a founder who raises $50 million at a billion-dollar valuation and is now, on paper, a billionaire, despite the fact that nobody ever paid anything like a billion dollars. The accounting value exists, the money does not. This is why interest rate rises are so effective at ending bubbles: they force people carrying debt to produce actual cash, and cash only comes from selling. On the way up the same mechanism works in reverse and invisibly. Rising asset prices create collateral, collateral supports more borrowing, and the borrowing pushes prices higher still. On the way down each step reverses, selling begets selling, spending falls, and one person’s reduced spending is another person’s reduced income. That is how a market event turns into the restaurant down the street closing.

How to actually hold money

Dalio’s first instruction is not to time anything, because the future is unknown and even sophisticated investors struggle to time a bubble. His second is the question he says he asked himself all the way up from having no money: how many months could I be fine if no more money came in, and then how many years. Only after that does the portfolio question arrive. His most counterintuitive claim is that cash, meaning short-term deposits and money market funds rather than literal notes, feels safest and is almost guaranteed to be the worst long-term holding. Inflation running at three and a half to four percent eats it, the interest you earn roughly matches that inflation at best, and you still owe tax on the nominal gain. Real returns come from productivity growth, which shows up in productive assets. He lays out the menu as stocks, bonds, property, gold, and Bitcoin, notes that they move against each other for different reasons, and says a properly diversified mix reduces risk without reducing return, provided you balance by volatility rather than by equal dollars, since stocks can fall 60 to 70 percent in a bear market. Property earns its place partly for non-financial reasons: it is your environment, it forces saving, and it is usually taxed favorably. Bonds carry the specific risk of being locked into a rate while inflation and interest rates rise. Gold is his preferred diversifier, because it tends to rise when everything else falls, was money until 1971, and remains the second largest reserve currency held by central banks.

Gold, Bitcoin, and hard money

Dalio holds roughly 1 percent of his portfolio in Bitcoin and recommends 5 to 15 percent in hard money generally, with a preference for gold inside that allocation. His reasoning is about durability rather than ideology. Both are kinds of money that cannot be printed, which is the property he wants. But gold cannot be cracked by technology, you can physically hold it, and it is commonly described as the only financial asset that is not somebody else’s liability. Bitcoin, in his framing, is exposed to technological risk including quantum computing, is monitorable by governments, and is therefore taxable and controllable in a way gold is not. He also makes a specific institutional argument: central banks will never hold Bitcoin in significant size because they want their transactions private and under their own control, and central bank demand is a large part of what gives a reserve asset its floor. His illustration is Russia, where other assets were confiscated and the gold was not, and he notes that in a period of conflict there is a growing sense that holding the physical thing means others cannot take it.

What AI does to work

Dalio’s model of technological history is a line climbing the human body. Agriculture had little inventiveness, then the machine replaced physical necessity, turning men who worked like oxen into operators of tractors. The industrial revolution replaced physical labor in factories. Now the same line has climbed past the body and is replacing higher and higher levels of thinking and reasoning. His answer to who benefits is the capitalists with the ideas that replace the workers, and he points to the split of business revenue as the measurable proof: labor’s share is falling, ownership’s share is rising. He notes that college graduates are struggling to find work in a relatively strong economy, and is candid about why, which is that training a graduate is increasingly more friction than getting the same task done quickly with AI. On unemployment he makes an important distinction that most commentary blurs. The slow substitution of labor by technology is evolutionary and continuous. The sharp spike in unemployment comes from the financial dynamic, the bubble bursting, collateral disappearing, companies cutting costs to survive. Both are running now, which is why the next downturn will be attributed to AI when much of it will actually be the debt cycle doing what it always does.

Asked about the Silicon Valley reassurance that unforeseeable new jobs will appear as they did after the tractor, Dalio’s answer is structural. The historical escape route was that as the body was replaced, people moved up into the mind. When the mind is replaced too, what is left to sell? His honest guess is emotion and intuition, the things AI does not have, and he asks whether the robot gives a good massage. He is clear that society will have to wrestle with what remains. He also declines to let the argument rest on employment alone. Around 61 percent of US adults own stock in some form, mostly indirectly through retirement plans, only about 20 percent hold individual shares directly, and the top 10 percent of households hold almost 90 percent of the stock. An AI boom that shows up primarily in equity prices widens the wealth gap by construction, before a single job is affected. For the foreseeable future, his view is that the people who do well are those with exceptional human intelligence working in genuine partnership with the machines.

What he would tell a 16-year-old

Dalio starts by rejecting the premise that the highest income is the goal, noting there is very little correlation between money and happiness past a basic level, and that his own favorite thing, being in nature, costs almost nothing. The target is to get above the level where you have to panic, which loops back to the how-many-months question. Then comes his principle: make your work and your passion the same thing, and do not forget about the money part. When Bartlett pushes on specifics, whether a grandchild should become a lawyer or take any thinking job, Dalio refuses to name a field. His argument is that history shows it is not the most intelligent people or species that succeed, nor necessarily those who work hardest, but the most adaptable. Coding was the obvious safe answer until AI coding tools arrived, and naming a job today would mislead a teenager the same way. What he offers instead is self-knowledge, since people differ by nature and not just preference, some adventurous, some conceptual and imaginative, some needing concreteness and certainty. He built a personality profile test at Bridgewater for exactly this reason and put a free 30-minute version online as Principles U. The practical instruction is to get over the fact that you cannot know the future, maximize your ability to learn using the tools now available, and use that to make yourself as useful as possible doing things that fulfill you.

The big cycle

Dalio’s chart has three elements. A rising line of technological progress, which never reverses because you do not unlearn what you have learned. A short cycle from recession to recession, averaging about six years give or take three, driven by monetary easing, prosperity, bubble, inflation, tightening, recession. And the big cycle, roughly 80 years or about a lifetime, last reset in 1945, which resets three orders at once: the monetary order, the domestic political order, and the geopolitical order. Debt builds up across a lifetime until debt service squeezes everything else. Wealth gaps build up because capitalism, which Dalio says he loves, reliably produces large differences in income and wealth, and those differences become differences in opportunity because wealthy people can educate their children well. The industrial revolution led to the gilded age, the gilded age led to the robber barons, and Dalio says the present looks a lot like the gilded age. When the orders break down, the debt burden gets wiped out, the monetary system changes, and domestic systems often end in a period of great internal conflict. He has studied 500 years of these cycles across many countries and insists the markers are objective and measurable, like a physical exam: indebtedness, education levels, competitiveness. Asked where the US and UK sit now, he says late in the cycle, in the decline.

Inequality, taxes, and who can actually fix it

Dalio’s concrete example is his own state. Connecticut is among the richest per capita in the country, and 22 percent of its high school students have either dropped out or are failing with absentee rates above 25 percent, feeding into gangs, shootings, drugs and incarceration, to the point where the incarceration bill exceeds the education budget. His conclusion is that a system has to work for most people, and that below a certain floor of education, housing and healthcare, people become liabilities to the society rather than assets. He does not think this is inherent to capitalism, pointing to Singapore and the Scandinavian countries as places that maintain a floor. On wealth taxes, which Bartlett notes are the dominant political debate in the UK, New York and Los Angeles, Dalio is careful to speak only about mechanics. Paying a wealth tax requires selling wealth, which is one of the classic bubble-pricking events. Valuing illiquid wealth is administratively very difficult. Taxing the top at 100 percent still would not raise enough because the group is small. And people do leave, at which point governments historically respond with retroactive tax dates, exit taxes, and capital controls. He is not against raising revenue and notes there are ways to do it without hurting the economy, such as changing the stepped-up basis at death, but insists that transfer payments funding consumption while draining capital investment undermine the productivity the whole thing depends on. Asked who could actually run this well, he says governments do not make things run well and do not attract the people who do, that private capitalist enterprises typically outperform their government counterparts, and that he does not know the answer. What he wants is a strong middle rather than two warring extremes, and a bipartisan commission of people who genuinely understand economics producing a difficult plan with shared pain, the way the constitution was produced. He immediately calls this a long shot and says the cycle makes a big fight more likely.

The UK as cautionary tale

Asked what the UK is currently a cautionary tale of, Dalio says the classic cycle: over-indebted, underproductive, and out of choices. The political churn follows mechanically. Six new prime ministers in seven years, each arriving with a promise, each promise failing to survive contact with the arithmetic, each leader thrown out. He walks the trap: you cannot raise taxes because the people with money leave and conflict intensifies, you cannot cut benefits because those receiving them are the ones already suffering, and you cannot keep borrowing because lenders lose their appetite for financing your deficits. The exit is a major restructuring, which in practice means central banks doing a mixture of printing money, which produces inflation, and restructuring debt, usually by lengthening maturities, often accompanied by capital controls and exit taxes to stop money leaving during the turbulence. Asked whether a 21-year-old should build a company in the UK, Dalio says he would try to exist without borders and go where the vibrancy, capital, education and civility are, in what he calls renaissance states. He cites the expression that a smart rabbit has three holes, since the best place today may not remain the best place. On the UK specifically, he sees a difficult place as a whole containing genuinely stimulative pockets that sit inside an unhealthy system, and notes the same is true of parts of the United States.

The changing world order, Taiwan, and Iran

Before World War I there were regions rather than one world, so a powerful China and a powerful Britain could coexist without contest. Once the world became one, disagreements had to be resolved, and Dalio’s blunt answer to how they get resolved is war, not necessarily physical. The rules-based order is a theory constructed by the United States after 1945, and when it conflicts with power, power wins. He expects the outcome this time to be regional rather than a single dominant power, with the Americas as one region and the Asia-Pacific around China as another, and he thinks that is the more beneficial outcome. His read on China is that it has no desire to occupy or control other countries, that its top-down system is an extension of Confucian family structure, and that its objectives are not to be cut off, not to be harmed, and to compete on its own terms. He expects Taiwan to be resolved by pressures leading to reunification rather than a great war, and points out that a Chinese threat to blockade chips leaving Taiwan for even five days would crash world markets, which is a form of power requiring no military at all. Each country’s relative strength will come down to internal management: education, spending, and self-governance. The American risk is erosion from within through debt and conflict.

On Iran, Dalio says plainly that it was a big mistake, and his reason is about revelation rather than the war itself. Speaking to world leaders, particularly in Asia, he finds a growing recognition that the United States does not want to fight a war, because a public worried about gas prices and casualties wants it over fast, and you cannot fight that way. The consequence is that countries who expected an American counterbalance to China are recalculating, and the bases they hosted may now be liabilities rather than protection. He asks how the American public would react to sending carriers to defend the Philippines under a treaty comparable to NATO’s, and lets the question answer itself. He also points out that occupation does not work over time, with ninety million Iranians who will be there regardless, and that the Chinese understand this through the art of war and the tribute system. The comparison he lands on is Britain at Suez. Before it happened the threat was enough, and afterward everyone could see that the power behind the threat no longer existed. That, he says, is what a change in the world order looks like from the inside.

Notable Quotes

“Wealth is not the same as money. So you see a lot of people getting wealthy but you can’t spend the wealth. You have to sell the wealth to get money because you can only spend money.”
Ray Dalio, on the distinction that explains every leverage crisis

“There’s almost nothing that’s easier to produce than stock. So if I own a company, I can just print more equity.”
Ray Dalio, on the supply side of a bubble that almost nobody watches

“People think that that’s the safest. It has the lowest return guaranteed almost to have the worst return over the longer period of time.”
Ray Dalio, on holding cash

“What is it that we have to sell as humans once our body and our minds are replaced?”
Steven Bartlett, putting the question Dalio says society will have to wrestle with

“History has shown that it’s not the most intelligent people or the most intelligent species that are the most successful, and it’s not necessarily those that work the hardest, although these things are very important. It is those species and people who are also most adaptable.”
Ray Dalio, on what to tell a 16-year-old who wants to know what to study

“Just get over the fact that you don’t know what the future’s going to be like.”
Ray Dalio, refusing to name a safe career

“My principle is make your work and your passion the same thing and don’t forget about the money part.”
Ray Dalio, on the advice he gives his grandchildren

“If you go below those levels, the society will pay terribly for it because those people will become liabilities, not assets of the society.”
Ray Dalio, on the floor of education, housing and healthcare every society needs

“Governments do not make things run well. So, what is it like to give them the money and expect that they’re going to make things work well?”
Ray Dalio, on why taxation alone does not solve the productivity problem

“There’s a Hong Kong expression, I think, that a smart rabbit has three holes.”
Ray Dalio, advising a young founder not to tie themselves to one country

“Like the British in the Suez Canal, we didn’t realize. Now we realize that power no longer exists.”
Ray Dalio, on what the Iran war revealed about American leverage

Watch the full conversation here for the complete walkthrough of the bubble mechanics, the portfolio discussion, and the sections on wealth taxes and the changing world order.

Tag: you can only spend money

Ray Dalio on the AI Bubble, the End of the 80-Year Big Cycle, Why Cash Is Not Safe, Gold Over Bitcoin, and What He Would Tell a 16-Year-Old Now