Ray Dalio – The Big Cycle of Empires
1. Rise through Productivity & Education
A nation invests in education, innovation, and discipline. Productivity rises faster than debt, creating prosperity and competitiveness.
2. Trade Expansion & Global Influence
Exports grow, the currency strengthens, and the country becomes a financial and trading hub. The world trusts its currency and governance.
3. Financialisation & Debt Growth
Wealth shifts from industry to finance. Easy credit fuels asset booms. Debt outpaces productivity. Inequality rises.
NOTE: As production and jobs move offshore to cheaper colonies, profits flow back to the imperial centre as the safest place to store them with the best remuneration this is done by buying US treasures, in this case.
So instead of being reinvested in industry, these profits are parked in financial assets - stocks, bonds, and good property - because the reserve-currency economy is seen as safest and most profitable.
The result is rising debt, inflated asset prices, and a hollowed-out real economy - a switch from a production to a consumption economy where the Metropole lived on debt borrowed from global production economies.... this is obviously unsustainable in the long run: you cannot live forever on debt.
4. Loss of Competitiveness
Labour and production costs climb. Foreign competitors catch up. The empire consumes more than it produces.
5. Internal Conflict & Populism
The wealth gap widens, trust in institutions erodes. Society polarises into rich vs poor, left vs right, insider vs outsider.
6. External Conflict & Overreach
To sustain its dominance, the empire extends militarily or financially. Rival powers challenge it. Wars hot or cold drain resources.
7. Decline & Reset
Excess debt, currency debasement, and social unrest culminate in crisis. Defaults, regime change, or restructuring follow.
The cycle restarts as new, more disciplined powers rise from the periphery.
Source: Ray Dalio, “Principles for Dealing with the Changing World Order”, 2021.
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