Bridgewater Associates is among the largest and most successful hedge funds in the world. Bridgewater’s founder, Ray Dalio, wrote this book after noticing the simultaneous convergence of factors that we haven’t seen in our lifetime, a convergence that will produce outcomes we’ve never encountered. Most investors move assets based on what they’ve experienced in their lifetime. Very few will glance backward to the mid-20th century. To Dalio’s knowledge, he’s the only investor who ventures back into history far enough to discern the overarching cycles that have defined nations and economic systems over the centuries. After researching the rise and fall of empires across history, Dalio locates the world’s current empires in the empire life cycle, and describes how to plan and invest accordingly.

The rise-and-fall pattern of dynasties and empires follows “the Big Cycle.” The Big Cycle involves the overlap of numerous smaller cycles, most significantly:

-“long-term debt and capital market cycles” (century-long debt cycles coinciding with short-term debt cycles and the decline and replacement of the globally accepted reserve currency)

-“internal order and disorder cycle” (fissures in values, wealth, and politics wider than ever, and exacerbated by economic instability)

-“external order and disorder” (the rise of a global rival that challenges the world’s reigning superpower)

Two other highly influential factors that could also be added to this list are acts of nature (plagues, famines, and floods), which tend to destabilize and shift existing power dynamics, and technological innovations that change the world.

Cycles of long-term debt, capital market, internal and external order and disorder are normal, but they are usually scattered across an empire’s lifespan. Every once in a while they happen simultaneously, and when they do, it signals the coming of era-defining, seismic shifts that will irrevocably change the course of history.

All these smaller cycles are present in our world right now. In our own time, the Big Cycle is showing up in the form of huge debts and super low interest rates catalyzing the printing of enormous amounts of the world’s reserve currency (USD, for now). This has devalued and destabilized the USD and signals that the USD might not be the world’s reserve currency much longer. We also see the Big Cycle in major upheavals within nations (especially in the United States), and the growing rivalry between the reigning superpower (USA) and a rising superpower (China). There haven’t been overlapping cycles like this since the Third Reich tried to take over the world in the 1930s and 40s. We’ve even experienced a world-rattling plague recently.

The Big Cycle creates a back-and-forth between periods of peace, prosperity, and creativity; and periods of revolution, war, and decline. The halcyon periods are always significantly longer than the periods of upheaval, but as one empire begins to decline and another rises to replace it, the shifts between periods of peace and turmoil become increasingly dramatic: ever bigger booms and busts. This is normal. Violent fluctuations are expected when the Big Cycle begins.

At a conceptual level, people understand that the sun eventually sets on any state or economy, but most are still shocked when the sun sets on theirs. When people don’t look at the big picture patterns that emerge over the course of generations, they end up blindsided by the once-in-a-lifetime upheavals that shift virtually everything. An empire’s average lifespan is about 250 years, which is about how old the United States is at the moment.

Gold River Trading Co. is an American tea and hot chocolate company that serves modern pioneers forging new frontiers and charting new paths. Gold River's specialty blends pair well with great books, gold rushes, and interplanetary space travel. Skip the coffee crash and the carbonated sugar-water and start your day with a healthy, flavorful cup of 1776 American Breakfast or Gunpowder Green Tea.

Shop now and receive 10% off using discount code “THINKR” at checkout.

At the 1944 Bretton Woods Conference in New Hampshire, the USD became the world's reserve currency. It was the end of World War II, the United States was enjoying peace, prosperity, and global influence—a classic signal of a Big Cycle beginning.

The tide started to turn against the United States and USD as other nations became increasingly competitive and the dollar began to drop. No one saw this as a Big Cycle, or the beginning of the unraveling. It was just an economic hiccup that market forces would sort out, as far as most people were concerned.

But between astronomical costs of the space race, the Vietnam War, and the War on Poverty, the dollar was struggling. In 1971, under President Nixon, the USD was decoupled from gold, and it fell relative to gold—and then relative to just about everything else, from stocks to bonds.

Going off gold meant market fluctuations that rippled across the globe. Since the collapse of the Soviet Union in 1991, there was a period of prosperity in many parts of the world. But amidst the optimism and globalization, there were three flies in the ointment: the dot-com bust in 1999, the housing bust in 2008, and the COVID-19 pandemic that began in 2019. These events are tremors that foreshadow tectonic shifts to come. The USSR fell, but China has been on the rise since that time too. Tech continues to replace human labor, and the income gap in the United States has not been this wide for a century.

Where are we now? The United States is approximately 70 percent of the way through the Big Cycle, give or take. At the moment, the United States checks a lot of the Big Cycle boxes, but not all of them. For example, there is certainly high and rising internal conflict in the United States: There have been frequent protests and the past several elections have been tight and fiercely contested. The country is not yet, however, on the verge of civil war.

When internal fighting is respectful and the gloves stay on, the order can be strengthened through productive conflict. But when the gloves come off and people en masse begin caring more about the success of their causes over the continuation of the system, the system’s position becomes precarious. In the United States, the chance of civil war in the next 10 years is about 30 percent (according to Dalio’s metrics).

Thirty percent is an unsettlingly high probability, and it points toward extremely polarized politics. A revealing 2010 study found that half of Republicans and a third of Democrats would be upset if their children married someone from the opposite party. Now consider that in 1960, that figure was just five percent for both Democrats and Republicans polled.

On the other hand, while the United States is polarized, its internal order is especially strong. Many people believe very strongly in a constitutional form of government. This bodes well for internal resilience, but it will also be highly disorienting and damaging for the country if internal order does collapse.

Can these Big Cycle phases be stopped or slowed? History reveals it is extremely hard to reverse the Big Cycle’s turnings that have already occurred. As much as we might want to go back to an earlier time, the best we can do is face the challenges that are before us, adjust, and innovatively confront difficulties arising now instead of wishing for a return to yesterday’s.

Can these cycles be reversed? Reversing small cycles of widening wealth and value gaps might sound appealing, but even these small cycles are hard to alter. Even if a society manages to do so (a high improbability), the small cycles are also turning within a Big Cycle, which has huge amounts of cultural and historical inertia. Big debt plus loss of international clout plus inner polarization equals a big concern for Americans and anyone else whose ship rises or falls with the US tide.

Another factor to consider in anticipating the future is that the declining and rising superpowers (the United States and China, respectively) possess nuclear weapons. This has created a de facto mutually assured destruction (MAD) that has ensured an uneasy peace. This peace defies the average recess between superpower clashes. During the past 500 years, major regimes have fought, on average, every 10 years. But there has not been a major blowup between superpowers since WWII. In the event that the United States and China fight, the loser will be wiped from the map and the winner’s victory will be pyrrhic. The status quo of mutually assured destruction will probably only lift when one side gains an outsized technological advantage that revolutionizes warfare.

There is no crystal ball that allows us to divine the future and plan accordingly. That being said, there is a pattern that consistently repeats itself (or at least “rhymes”) across history, and by understanding that pattern, we can at least peek around the corner.

Here are your touchstones for decision making and anticipating the future as much as you can:

-Evolution

-Cycles

-Indicators

Evolution isn’t just a theory for biologists. The idea of evolution is central to understanding our current moment, and the economic, political, and social trends that have brought us to now. Looking at broad, big picture trends in, for example, life expectancy, per capita wealth creation, standards of living, and population, we get a sense of what could be expected in the future—at least in general terms. For example, if the population rate has been growing throughout our history, and even exponentially in the last century, we could reasonably extrapolate that the population will continue to trend upward. Even in years where there was tremendous loss of life (e.g., the Spanish Influenza, World War II), global population increased. That being said, extrapolation only gets us so far. The occasional paradigm shift can forever change the face of the world. The Digital Revolution was probably one of the most significant and difficult-to-anticipate evolutionary lurches forward, but it has forever altered life on our planet.

Cycles, as already discussed, play a huge role in prosperity and loss. Knowing where a nation is in its big and small cycles will help guide your investing. Your best bet is putting money where things appear to be improving, evolving toward greater productivity and higher income. But don’t do it so aggressively that your future depends on it. To help determine which bets are likely to succeed or fail, you need quality indicators.

Indicators are the factors that determine the ebbs and flows of power and wealth in a country and between countries. As mentioned above, the Big Five indicators are the debt/money/market capital cycle, the internal order-disorder cycle, the external order-disorder cycle, innovation, and acts of nature. There are however, a dozen others that deserve consideration, like geography, geology, levels of self-interest, drive to create and hang onto wealth, culture, openness to global norms, leadership, the political left-right swings, and so on.

By understanding the cycles that fuel the rise and fall of nations, you will be able to anticipate what changes are on the horizon and position yourself accordingly, shielding yourself from the worst of it and capitalizing on the best of it.

These insights are just an introduction. If you're ready to dive deeper, pick up a copy of Principles for Dealing with the Changing World Order here. And since we get a commission on every sale, your purchase will help keep this newsletter free.