4 June 2025
Ray Dalio’s How Countries Go Broke: The Big Cycle is a stark warning from one of the world’s leading investors. Drawing on centuries of economic history, Dalio shows how nations rise through productivity and fall through debt, denial, and decay. His message is clear: when governments prioritise short-term politics over long-term stability, economic collapse is not a question of if—but when.
How Countries Go Broke: The Big Cycle
1. The Big Debt Cycle Explained
- Early Stage:
- Mid Stage:
- Late Stage:
- Crisis Stage:
2. Indicators of Economic Vulnerability
- High Debt-to-Income Ratios:
- Rising Interest Payments:
- Dependence on Foreign Investors:
- Currency Depreciation:
3. The Role of Central Banks
4. Historical Context and Case Studies
5. Recommendations for Policymakers
- Fiscal Discipline:
- Productive Investment:
- Transparent Communication:
- Diversification:
1. HOW COUNTRIES GO BROKE — RAY DALIO’S BIG CYCLE EXPLAINED
Ray Dalio’s latest book, How Countries Go Broke: The Big Cycle, offers a clear and sobering explanation of how great nations rise and fall - not through sudden external shocks, but through predictable internal cycles of debt, excess, and mismanagement. This is not a book of abstract theory - it’s meant for understanding the slow and often self-inflicted collapse of economies, including our own.
2. THE BIG DEBT CYCLE — A PATTERN REPEATED THROUGH HISTORY
Dalio’s central claim is simple: countries go broke in cycles, and these cycles are surprisingly consistent across empires, centuries and continents. The process begins with healthy borrowing and ends with currency collapse, political instability, and often regime change as a new Order is born.
The Big Cycle has four broad stages:
Early Stage: Borrowing is modest and productive. The economy grows. Confidence builds.
Mid Stage: Debt grows faster than income. Asset prices boom. Politicians avoid austerity.
Late Stage: The country becomes addicted to borrowing. Interest payments soar. Growth slows. Central banks print money to fill the gap.
Crisis Stage: Inflation rises. The currency devalues. Foreign investors flee. Social unrest grows. The debt can no longer be serviced.
At this point, the country is bankrupt—even if it doesn’t admit it.
3. THE ROLE OF CENTRAL BANKS AND POLITICAL SHORT-TERMISM
According to Dalio, the modern central bank doesn’t prevent crises, it delays them. By lowering interest rates and buying government bonds (QE quantitative easing), central banks enable politicians to continue borrowing and spending. But this only shifts the pain and the burden to the future, often worsening the eventual reckoning.
And the political class? Dalio is blunt. They are trapped in the incentives of the election cycle. He could talk more about the lobbies.. Raising taxes or cutting spending is unpopular. So instead, they rely on cheap money and denial ... until the bond market revolts.
4. CASE STUDIES — THIS ISN’T THEORY, IT’S HISTORY
Dalio draws on dozens of real-world examples to show that the Big Cycle plays out again and again:
The Great Depression (1930s USA): Massive debt from the 1920s, deflation, social unrest, and global protectionism.
The 1970s Inflation Crisis: Loose monetary policy, oil shocks, rising interest rates.
The 2008 Financial Crisis: Excessive private debt, cheap credit, systemic fragility.
Modern Emerging Markets: Argentina, Turkey, Sri Lanka—nations that fell into currency collapse and default after foreign capital dried up.
Dalio warns that the U.S. is now in the late stage of its Big Cycle.
5. WHAT SHOULD GOVERNMENTS DO?
Dalio isn’t fatalistic—he offers solutions. But they require political will and economic discipline:
Keep debt below 3% of GDP.
Use borrowing for productive investment, not short-term consumption.
Encourage long-term planning over election-cycle thinking.
Prepare early, because when the crisis arrives, it’s too late.
6. BROADER IMPLICATIONS — THIS IS ABOUT POWER, NOT JUST MONEY
While Dalio is an economist, his conclusions have geopolitical weight. As a country’s finances deteriorate, its power declines. Economic fragility invites external threats. Military ambition becomes increasingly unaffordable. Civil unrest becomes uncontainable. In Dalio’s model, debt is not just a balance sheet item, it is the litmus test of national viability.
As the U.S. faces growing deficits, political paralysis, and monetary overreach, Dalio’s warning is not at all theoretical or abstract, it is immediate and practical.
7. GLOSSARY
Big Debt Cycle: Dalio’s term for the multi-decade pattern of borrowing, overextension, crisis, and reset.
Quantitative Easing: Central bank policy of buying government bonds to lower interest rates and inject liquidity.
Currency Devaluation: When a currency loses value relative to others, often leading to inflation.
Fiscal Discipline: Government policy of managing spending and borrowing within sustainable limits.
Sovereign Default: When a country is unable to repay its national debt.
8. REFERENCES
Dalio, Ray. How Countries Go Broke: The Big Cycle. Bridgewater Associates, 2024.
Dalio, Ray. Principles for Navigating Big Debt Crises. Bridgewater Publishing, 2018.
Reinhart, Carmen & Rogoff, Kenneth. This Time is Different: Eight Centuries of Financial Folly. Princeton University Press, 2009.
BIS Annual Report (2023): www.bis.org
IMF Fiscal Monitor (2024): www.imf.org
Final thought: Countries don’t go broke suddenly. They do so gradually, then all at once. Ray Dalio’s book tells policymakers, investors and rhe public what is really going on and how to correct the system.
If we don't understand the pattern, we will inevitably repeat it.
