‘Every world power has its time in the sun’: Ray Dalio says we are in Stage 6 of the ‘Big Cycle’; what it means

Every world power has its time in the sun and as a rule of major churning, is succeeded by another world order, explained Ray Dalio, founder of Bridgewater Associates and author, in a post on social media. Dalio explained the many factors that lead to the major churn – the change in the global world order – that takes place in about an average of 150 years. 

He said every world power eventually declines – some more gracefully, and some with major trauma – but the fact is, they all eventually decline. 

“Every world power has its time in the sun, thanks to the uniqueness of their circumstances and the nature of their character and culture (e.g., they have the essential elements of a strong work ethic, smarts, discipline, education, etc.), but they all eventually decline. Some do so more gracefully than others, with less trauma, but they nevertheless decline. Traumatic declines can lead to some of the worst periods in history, when big fights over wealth and power prove extremely costly both economically and in human lives,” he said. 

There is still a caveat, he explained. If the countries that are in their powerful stages “stay productive, earn more than they spend, make the system work well for most of their populations, and figure out ways of creating and sustaining win-win relationships with their most significant rivals”. 

“A number of empires and dynasties have sustained themselves for hundreds of years, and the United States, at 245 years old, has proven itself to be one of the longest-lasting,” he said. 

WHAT DOES ‘STAGE 6 OF THE BIG CYCLE’ MEAN?

TL;DR: It is a cycle of how empires rise and fall. While the big cycle happens in say centuries, there are multiple smaller triggers that take place within that said cycle. 

To begin with, Dalio said that the post-1945 world has been pronounced dead by most leaders. It is also indicative that US Secretary of State Marco Rubio recently said that we are in a “new geopolitics era”.

“In my parlance, we are in the Stage 6 part of the Big Cycle in which there is great disorder arising from being in a period in which there are no rules, might is right, and there is a clash of great powers,” he said. 

Citing from his book, ‘Principles for Dealing with the Changing World Order’, Dalio said that international order actually follows the law of the jungle more than it follows international law.

TYPES OF WAR

Dalio said the smaller triggers or friction happen because of the five kind of wars that are being fought between nations. These are:

• Trade/economic wars: Tariffs, import/export restrictions, etc
• Technology wars: Technological know-how and protection of it for national security 
• Geopolitical wars: Territory and alliances 
• Capital wars: Sanctions, limiting foreign access to capital markets
• Military wars: Deployment of military forces

“All of the factors that drive internal and external cycles tend to improve and worsen together. When things get bad, there are more things to argue over, which leads to greater inclinations to fight. That’s human nature, and it is why we have the Big Cycle, which oscillates between good times and bad ones,” he said.

Dalio explained that all-out wars typically occur when existential issues can’t be resolved by peaceful means. The side that sets the rules usually has supremacy. Giving the example of Europe, Dalio said that there were three big cycles of rising and declining conflict, averaging about 150 years each since 1500. “Though big civil and external wars last only a short time, they are typically the culmination of the longstanding conflicts that led up to them,” he explained.

The smaller triggers like the Renaissance, the Enlightenment, and the Industrial Revolution sowed the seeds for violent external wars like the Thirty Years’ War, the Napoleonic Wars, and the two World Wars.

THE ECONOMICS OF WAR

Dalio explained that wartime economies involve a sudden shift from normal commerce to prioritising national survival. Governments impose strict controls on production, trade, and capital movement, limiting traditional economic activities. Safe investments lose their security, capital mobility is restricted, and taxation increases to support the war effort, he said.

Governments regulate nearly all economic aspects during war. They decide which goods can be produced, traded, exported, or imported, and implement rationing and purchase limits. Prices, wages, and access to financial assets are tightly controlled. Movement of funds out of the country is also limited.

Now, to fund military operations, governments end up generating large debts, often monetised, which devalues currency and debt instruments, leading to gold becoming the preferred medium for international transactions as credit loses acceptance. Market- and cross-border trade-disrupting measures are usually implemented, including centralisation of economic control, imposing sanctions on enemies, and cutting off their access to capital while facing similar restrictions themselves. 

“Protecting one’s wealth in times of war is difficult, as normal economic activities are curtailed, traditionally safe investments are not safe, capital mobility is limited, and high taxes are imposed when people and countries are fighting for their survival. Protecting the wealth of those who have it is not a priority relative to the need to redistribute wealth to get it to where it is needed most. As for investing, sell out of all debt and buy gold because wars are financed by borrowing and printing money, which devalues debt and money, and because there is a justifiable reluctance to accept credit,” he said.