Ray Dalio in Principles argues that while current events like tariffs grab headlines and have significant impacts, they are merely symptoms of much larger, more fundamental shifts underway.

Focusing solely on these immediate events, attributed often to specific political figures like President Trump, distracts from the underlying breakdown of the major monetary/economic, domestic political, and international geopolitical orders.

This kind of breakdown is a rare but historically recurring phenomenon driven by unsustainable conditions.

The monetary/economic order is strained by excessive debt, particularly the imbalance between debtor nations like the US and creditor nations like China, a situation exacerbated by deglobalization and declining trust.

The domestic political order is fracturing due to deep societal divisions (wealth, opportunity, values) and political dysfunction, leading to polarization and potentially undermining democratic processes.

The international geopolitical order is shifting away from US-led multilateralism towards a multipolar, unilateral system where power dynamics are more overt, manifested in trade, tech, and geopolitical conflicts.  

Adding to these pressures are increasingly disruptive acts of nature and transformative technological changes like AI.
Dalio stresses the importance of understanding these five interconnected forces – the three order breakdowns, nature, and technology – as the true drivers of the “Overall Big Cycle.
” Studying historical precedents, can provide insight into the current stage of this cycle and potential future developments, including policy responses that might seem unimaginable today (like capital controls or debt suspensions).
The ultimate plea is to look beyond the daily news cycle to grasp these deeper, long-term forces shaping our world.

Essential Concepts

  • Focus Beyond Symptoms: Current events (like tariffs) are symptoms, not the root cause of major global shifts.
  • Breakdown of Orders: We are experiencing a classic, historical breakdown of the monetary/economic, domestic political, and international geopolitical systems.
  • Unsustainable Debt & Imbalances: Excessive global debt and the creditor-debtor relationship (e.g., China-US) are unstable, especially amid deglobalization.
  • Domestic Polarization: Deep societal gaps (wealth, opportunity, values) are leading to political breakdown and weakening democratic norms.
  • Shifting World Order: The era of US unipolar dominance is ending, replaced by a more competitive, unilateral international system.
  • Five Driving Forces: The primary drivers of change are the breakdowns in the three orders (monetary, political, geopolitical), plus acts of nature and technological advancements (like AI).
  • Interconnectedness of Forces: These five forces influence and interact with each other significantly.
  • Historical Cycles: Current events mirror patterns seen throughout history (“Overall Big Cycle”); studying the past offers insight into the present and future.
  • Deglobalization & Self-Sufficiency: Growing mistrust between nations is leading to a retreat from interconnectedness and a greater focus on national self-reliance.

 

 

Source: principles.com