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The following is a conversation with Ray Dalio, his second time on the podcast.
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He is a legendary investor, founder of Bridgewater Associates, author of a book I highly recommend called Principles, and also a new book called Principles for Dealing with a Changing World Order.
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that looks at the geopolitics of today, especially U.S.
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and China, through the lens of history, providing a fascinating model for the rise and fall of empires that can be applied to the analysis of our world today.
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And now, a quick few second mention of each sponsor.
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Check them out in the description.
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It s the best way to support this podcast.
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First is Athletic Greens, the all-in-one nutrition drink I drink twice a day.
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Second is GiveWell, a directory for best, most effective charities.
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Third is Magic Spoon, low-carb, keto-friendly cereal.
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Fourth is Blinkist, the app I use to read summaries of books.
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Fifth is MasterClass, online courses from world-class experts.
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So the choice is nutritional health, effective charities, delicious cereal, or wisdom.
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Choose wisely, my friends.
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And now onto the full ad reads.
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As always, no ads in the middle.
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I try to make these interesting, but if you skip them, please still check out our sponsors.
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Maybe you will too.
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I actually drink it twice a day now.
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It forms a basis for all the wild,
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So on a daily basis, it s good to make sure that you re getting all your vitamins, you re getting all your minerals, you re getting all your base nutrition taken care of.
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Plus, the thing tastes delicious, okay?
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So, it s definitely something that is core to a productive day, to a healthy day, to an exciting day for me.
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Anyway, they ll give you one month s supply of fish oil, another thing I take every day, when you sign up to athleticgreens.com slash lex.
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I m a huge fan of basically doing anything and everything optimally in life and making sure that you choose the optimal decisions in an evidence-backed, data-driven way.
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And philanthropy is no exception to that.
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This episode is also brought to you by Magic Spoon, low-carb, keto-friendly cereal.
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And also, it happens to be a longtime sponsor of the podcast and one of my favorite sponsors.
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An incredible invention of science, if I may say so.
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It reminds me of childhood.
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It reminds me of happiness.
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Some of my best and darkest moments of like high school or over cereal mostly has to do with the fact that it is deeply responsible to be eating unhealthy cereal when I m cutting immense amounts of weight during wrestling season.
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Blinkist takes the key ideas from thousands of nonfiction books and condenses them down into just 15 minutes that you can read or listen to.
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I can recommend an endless list of non-fiction books on there, from Sapiens to Marcus Aurelius  Meditations to Beginning of Infinity by David Deutsch.
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The Snowden book is on there.
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It just goes on and on.
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I use it in three ways.
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Two, to help select which books I want to read in full next.
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And three, just getting a sense of a book, a great summary of a book, key ideas in that book, in case I never get a chance to read it.
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But I can still, when people are talking about it, be sort of part of the conversation and understand what they re saying.
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Because honestly, Blinkist just captures the deep ideas in the books extremely well.
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That s Blinkist.com slash Lex, spelled B-L-I-N-K-I-S-T, Blinkist.com slash Lex.
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This list is frankly ridiculous.
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It includes Chris Hatfield, who by the way I definitely should probably talk to, but this course by him is just Chris at his best.
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Then Neil deGrasse Tyson, Will Wright, Carlos Santana, one of my favorite guitarists, Garry Kasparov, obviously one of my favorite chess players, Daniel Negrano for poker.
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Neil Gaiman, Martin Scorsese, Tony Hawk, Jane Goodall just keeps going on and on.
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It s an incredible list.
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If you want to learn about something, you should learn from the best people in the world that do that thing.
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Also, let me just say, now that I mentioned Martin Scorsese, how much I love him as a director.
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He has created so many masterpieces in film.
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And it kind of makes me sad because the amazing stuff going on with Netflix now makes me wonder if we ll ever have that sort of era of film where the best was created within those hour and a half, two hours, three hour segment.
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Whether everything now that s great is going to have to be a series.
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But anyway, whatever the future holds, the past is certainly beautiful, thanks to people like Martin Scorsese.
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Terms apply.
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This is the Lex Friedman Podcast and here is my conversation with Ray Dalio.
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When you look at the history of the world, as you have done in your new book, Principles of Dealing with the Changing World Order, what is more important, more impactful, money or power?
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They go hand in hand.
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They support each other and they compete with each other.
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Those who have money have power, a certain type of power.
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That power has to do with all that they can buy, but it also has the ability to influence those with political power.
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So, and so you see this throughout history, this symbiotic relationship, you know, for example, between the royal families and the nobility and the church.
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So you see that group of people supporting each other in various ways and then wrestling around with each other for the money and power among that group.
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So the dynamic that s quite classic is you could look at the parties in power back in, you know, the 16th, 17th centuries, you would look at royal families, nobles, and the church, if you re in Europe, and then you would look at agricultural land, and there was a certain dynamic.
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And that varies over time, it changes.
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As those people get thrown out and technology changes, so when we evolved, when the society evolved, so that it would produce goods and services, and you have something like the Industrial Revolution, the first Industrial Revolution, you have machines.
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and you have the talent of people that are off the farms, and then you have a struggling for power, you see that power mix change.
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And so we don t see that same power mix anymore, but you still see the same dynamic.
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You see those with money,
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dealing with those who have political power around those assets that are considered most valuable to particularly the productive assets that produce money.
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and political power is usually centered around nation-state, so the major locus of power is the nations.
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Yes.
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In 1668, after 30 years of war, there was
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the development of nation states.
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Before then, we had, it was really the development of countries as we know it, that there were borders, and that within those borders, those who had control got to control it, and there were not to be intrusions in those borders, and that s how we established the nation state.
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And then, of course, within each country, there is levels.
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There is a central level, and then there is a typically a province or state level down below, and then there s a municipal level.
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So they each have different levels of power, and it s the coordination of those that determines how the country is run.
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You write that the, quote, archetypal big cycle governs the rising and declining empires and influences everything about them, including their currencies and markets.
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The most important three cycles are the ones you mentioned in the introduction, the long-term debt and capital market cycle, the internal order and disorder cycle, and the external order and disorder cycle.
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Can you describe this big cycle?
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There are two orders.
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There is an order by an order, I mean a system, how the system works.
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So there s an internal order, that is the internal governance system, and it s usually set out in a constitution or some agreements.
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And then there s the world order.
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how the world system, so for example in 1945 at the end of a war, which is basically a fight for determining the world order,
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The winners of the fight got together and created the world system as we now know it.
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44, they created the Brenton Woods Monetary System that determined the money, pretty much.
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And because the United States won and had 80% of the world s money, gold was money then, and it had 80% of the world s gold, and it was half the world economy, and it was the great military power,
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The water was built around an American world order, so that the United Nations was in New York, the World Bank and the IMF were in Washington, and they built that new water.
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So classically, you have a war to determine whose rules we re following, and then you have the new water being constructed.
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After that, there is usually period of extended peace and prosperity.
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Peace suits prosperity.
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And so there s not, and the reason you have the peace is because no one wants to fight with the dominant power.
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You know you re gonna lose, you ve surrendered.
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There s been the surrendering.
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They carve up the world, they say what it s gonna look like.
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who s gonna control what.
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And then you come into that period of peace and then prosperity where then there s a working together.
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Usually at that point, you ve wiped out a lot of the debt, you ve wiped out a lot of the issues, the class warfare and so on.
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And then there s good working together.
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So those great periods
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such as the Industrial Revolution in the late 1800s, or what we ve experienced in the post-World War II period, are peaceful and prosperous periods led largely by the dominant world power.
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over a period of time, since really 1500, and maybe before, but really 1500 when the Dutch invented capitalism.
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And what I mean by that, they invented the first capital markets, the first stocks and the first stock market.
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that since then capitalism has been an effective tool for building wealth because it got resources into the hands of inventive people.
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That s when we move from agriculture to the importance of inventiveness of people.
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They got resources and then they built that prosperity.
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In that process of doing that, they create wealth gaps naturally.
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Those who make a lot of money,
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make a lot more than those that don t.
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And it also produces opportunity gaps because, for example, those who earn a lot of money have that wealth.
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They have the power to educate their children in a way that others don t.
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and the gaps grow, and also the debts grow at that time.
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When they go around the world with their competitiveness, they earn a lot of money.
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So for example, the Dutch, the Dutch Empire, learned how to build ships that would go around the world.
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A key ingredient of this improvement in this cycle
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is the improvement of education.
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And by education, I mean the skills that come from education, but also civility, the ability to deal well together.
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So the Dutch invented ships that could go around the world and they had military power, but they were also very inventive society.
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25% of the world s new inventions came from the Dutch.
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And so as they went around the world, they also brought their currency.
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and they brought their military.
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They needed the currency, they paid for things, and that currency, and then the more that happens, the more that becomes a reserve currency.
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And then they have their military, so they need their military strength, and so you see it evolve in all of those ways.
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But over a period of time, as they become more powerful,
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more successful and more expensive, they become more expensive.
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And newer countries come along, like the UK, then learn to build ships from a lot the Dutch, and could do that less expensively.
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And also when they become more expensive, so less competitive, and also the work ethic begins to change.
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They believe that since they re richer, they can enjoy life more.
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They don t have to work quite as hard.
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And so you start to see the tilt.
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You start to see the development of the top.
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And when you have a world reserve currency,
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that allows you to borrow a lot of money because those who want to save want to hold your money and that means that they ll lend you money and so those countries get deeper into debt.
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So you see that they gradually lose their competitiveness
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and they get themselves into financial circumstances which are not good, and they have large wealth gaps which set the stage for downturns.
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And when they have downturns,
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The first question is, do they have enough money?
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And traditionally, money is resources.
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So you classically see that the coffers are bare, that they re spending more money than they are earning, and they run out of money in the coffers.
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And their granaries are empty rather than stocked so that they give them the buffer.
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And as that deteriorates, that worsens conditions.
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And if they have a rival power that s also challenging them, they see greater internal conflict over wealth.
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And then they have the problems internally and the problems externally, which usually results in an internal war or an external war that leads to the change to the new world order.
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And to you, the Dutch Empire is a good example of that.
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The British, what are some of the key examples that you think about in the book of this process that followed the big cycle?
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Well, the leading reserve currency empires, but it applies to all the empires, were the Dutch, the British, the American, and the Chinese, but you can follow the same pattern.
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In the book, it was very important for me to not just use words and concepts because that s subjective.
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It was very important for me to use actual measurements.
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So as you see in the book, you can see every level of this.
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You can see where s the education level, what is the military power, each one of those, and you can see them back going over the 500 years.
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And so you can see the arcs and the composition of those arcs.
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And what you see is really, in most countries and most dynasties, you can see that.
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But you also can see through those numbers, the health
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of those countries.
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Today, there are statistics that are in the book that show what is the level of education, what is the level of economic output, what is the level of military strength, what is the level of a number of different measures of strength, so that you can then compare that.
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And I think that because there are objective measures of strength that you could see change, that shows the picture of where we are today.
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And I think one of the most important things about the book
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is that it allows people to monitor how those things are transpiring.
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I think for policy makers, are your policy makers doing a good job?
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And there s so much subjectivity in that.
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But I think it s very simple.
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If those lines on the chart are improving, if your health index is improving,
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then you re moving toward a better life.
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So that s what the book works like.
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Also, it was used to create a model for the future.
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In other words, there are cause-effect relationships.
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Everything that happens has reasons, causes that preceded it, that made it happen.
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And so by having all those in numbers, one can see the probabilities of certain things happening.
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So that s what you see in the book.
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It s not just, you know, Ray s interpretation.
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I didn t want to make it Ray s interpretation because I don t know if I m right.
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Yeah, so one of the fascinating things in the book, so you have to list these 18 measures, and there s like a little scorecard for the countries of the world today, so let s say U.S., China, and Europe, and what it was 20 years ago, and looking at the change from 20 years ago, and that s another indicator, the change itself, to see where things are headed.
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Maybe can you comment on, from a score perspective, how is US and China doing?
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And in the 18 measures, what are some measures that stand out to you as particularly important to think about today for the United States, for China?
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Well, there are a number.
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Financially, what you see in the United States is that we re borrowing a lot more money, creating a lot of debt,
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and we re printing a lot of money.
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And our capacity to do that is very much, is limited, first of all, because when there s a sale of a bond, when the government borrows more than it borrows money because it spends more than it takes in, you have to sell a bond.
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And the world right now has a lot of U.S.
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dollar-denominated bonds because as the world s reserve currency, they sell sole in them.
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And they have very bad returns, negative real returns, negative real returns significantly, and so on.
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So that...
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means that more bonds have to be sold than are bought.
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And that means that the Federal Reserve is faced with the choice of having to raise the interest rate to curtail borrowing.
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which slows the economy and hurts the markets, or by filling that difference and producing money, the debt monetization, which produces an inflation in goods, services, and financial assets.
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So in that regard, that s the United States  position.
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In China s case, its balance of payments is better.
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China has displaced the United States as the world s largest trading country.
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In other words, more exports to other countries.
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And as a result, it s economically competitive, but it doesn t have the world s reserve currency.
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It s a real blessing.
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So the United States, it has the world s reserve currency, but it is risking it because of this imbalance.
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So if you look at history, you see that those go slowly, but when they go eventually, they go quickly.
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So there s a risk of that financially.
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Then there s the issue of internal order.
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I m just giving you the major ones, but I ll get into some of the other ones too.
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Right now, there s a lot of internal conflict in the United States, which affects how well it works.
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In China, there s less internal conflict because it s a more autocratic state, but also they ve created this bifurcation
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of what is political and what is economic in terms of producing that prosperity.
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So if you stay out of the politics, pretty much, and then you re seeing entrepreneurship, you re seeing the finances of new businesses and so on.
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And so that internal working, you know, that s subject to different people s interpretations, whether they like it or not, but the internal conflict in terms of those kinds of measures is less.
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Sorry to pause on that for a second.
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So these measures, I guess you don t want to sort of
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romanticize any one measure or something like that, over-interpret any one measure, but is internal conflict always a bad thing?
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Is it a complicated calculation, or do you kind of, the way we think about these measures that you ve presented, we should be thinking like the higher, the better, the lower, the worse, I mean, of course, depending on the measure.
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Well, in many cases,
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The conflict that produces the revolution produces revolutionary changes that lead to resolutions and lead to new starts.
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And so a short-term civil war is a hellacious experience.
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and at the same time, it can be the transition to a new beginning.
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Also, there are different types of conflict.
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Competition, which makes everything better, is a productive conflict, whereas destructive conflicts are not good over the short time.
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So that s how those go.
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So within each measure, the story is complicated.
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Yeah, but my measures are sort of clear, meaning how much political conflict, how much social conflict.
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In other words, you can measure conflict, you can measure fighting, you can measure crime rates, you can measure lots of different ways of conflict.
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So the measures are a composite of different types of internal conflict.
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What are some other interesting measures, maybe if you could also mention that for me in particular interest is education and innovation.
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Yes.
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The classic cycle, the most important leading indicator,
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is the quality of education.
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Most importantly, broad-based education drawn from the largest population because you can never tell who the talent is going to be, where they re going to come from.
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So, for example, if you look at the Chinese dynasties, the great Chinese dynasties,
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and the Confucian approach, it was meritocratic of everybody could sit for exams and so on, broad base of drawing in the populations.
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And you see that if you go across societies.
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Because that draws on the largest number of population to get education.
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And it also, that creates a reality and a perception that the system is fair, equal opportunity, not just one of privilege, and that helps to create social stability.
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But education is not just education in understanding facts and so on.
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It is education in civility of how to behave together.
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And so if they re smart, they understand how to be productive because they work well together and they re productive.
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And then that leads to the next stage.
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SPEAKER_00
You can see in the lines in the charts, I plotted these, so that you could see in a typical cycle, you could see that education is the long leading indicator.
1
SPEAKER_00
And then you could see, as you mentioned,
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that what you see as inventiveness and technology measures then follow.
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And you see then also competitiveness in world markets follows.
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For example, in the early stages of a cycle, the industries that they go into tend to be very basic industry because they have cheap labor, something like textiles and simple manufactured goods and so on.
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But as the education rises, then they move up
1
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value chain to greater technologies and so on, which raises incomes and raises productivity.
1
SPEAKER_00
So yes, those, and as you say, there are 18 different measures like that, but education and then civility and the inventiveness.
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So you see it reflected in who s inventing what.
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And that corresponds then who s trading with
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Who s a big trading country?
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And where s the value of economic output?
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And what are per capita incomes?
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They all follow those arcs.
1
SPEAKER_01
Yeah, like you said, the fascinating thing about your book, so there s philosophy, there s wisdom, but there s plots.
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SPEAKER_01
Yeah, you can see it.
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SPEAKER_01
So it s not just your opinion, it s kind of like you can interpret it any way you like, but you re just giving a lot of your own insights along with the numbers.
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SPEAKER_01
If you were to look at the American nation, the American empire, and the trajectories looking into the future, given these measures,
1
SPEAKER_01
What is the trajectory that leads to the collapse of the American empire based on these measures?
1
SPEAKER_01
What are the concerning indicators?
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SPEAKER_01
And if those break down further, what does that look like?
1
SPEAKER_00
Well, all of those indicators
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are concerning, maybe except for one, which is technology, the technology niche, although even in that area, the United States is improving at a slower rate than is China for various advantages that they have there.
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SPEAKER_00
They put out about eight times as many computer engineers, they have free data, and so on.
1
SPEAKER_00
But if you look at them, so the financial is a concern.
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The internal order, disorder is a concern.
1
SPEAKER_00
Then if you look at education levels, the United States is in many ways, is losing its educational advantage.
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SPEAKER_00
If you were to look at, compare it with China, if you take general public education in the United States,
1
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It s deteriorated tremendously, even in comparison to developed countries.
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SPEAKER_00
There are scores, PISA scores and so on, and it s something like 38th in the world or something, and that was a big plunge, average public education.
1
SPEAKER_00
If you look at the best universities in the world, the United States is unique in having the best universities in the world, so there are these privileged spots that are excellent.
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uniquely excellent.
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SPEAKER_00
So when you look at the comparison, education in China is improving rapidly and the quantity is a quantity of educated people in the areas that they re moving in is greater.
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SPEAKER_00
and the resources that they re putting behind it is greater, and so you see the results are greater, but it s sort of along the lines that I m dealing with.
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SPEAKER_00
If you were to follow through in terms of actual productions, I think you know in terms of technologies, there are some areas that the United States is in a lead at the moment, there s some areas that China s in a lead,
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But China s gaining very quickly.
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When I first went to China, 1984, I would bring $10 calculators, and I gave them away as gifts to high-ranking people, and they thought they were miracle devices.
1
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Right now, in terms of areas like
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quantum computing and AI and, you know, many areas, you have a race going on.
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SPEAKER_00
And so if you take the trajectory of the competitiveness, not just look at the current level, you have a situation where they re improving at a much faster rate.
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SPEAKER_00
This is all good for the world if the world can get along.
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SPEAKER_00
And the main thing I think is, just in
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and how do you have a healthy world, and how do you have a strong economy, and how do you have a strong situation, is be strong.
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The United States  war is with itself.
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That s the main war.
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SPEAKER_00
You know, it s very simple in history.
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Be financially sound, earn more than you spend, and be strong in these ways, and pretty much everything will take care of itself.
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SPEAKER_01
But you make it sound simple, of course, because there s a momentum when things degrade, when the education system degrades, when you start borrowing, when, I mean, all of these indicators, once they start going down, there s a momentum to it, right?
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SPEAKER_01
So it s hard to reverse it.
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SPEAKER_00
Right, and there are circumstances that you re then in.
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For example, indebtedness.
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SPEAKER_00
You know, it s politically,
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desirable for those to borrow money and spend because their constituencies only look at what they get.
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SPEAKER_00
And when they get a lot, they don t pay attention to the balance sheet and how much debt is on the books.
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SPEAKER_00
So it s always better to borrow, spend, and then leave the cleanup to the next guy.
2
SPEAKER_00
And so you inherit a lot.
2
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um you inherited as a new president enters in or new legislators they have a lot of debt they have a broken down infrastructure um they don t have enough money to fix that and so that s the lay of the land that
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SPEAKER_00
the prior generations put you in, and there you are.
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SPEAKER_00
And so that s right.
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SPEAKER_00
It s difficult, because when you start to think, OK, what s healthy?
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SPEAKER_00
Well, earn more than you spend.
2
SPEAKER_00
Well, that s not so easy, because what does that mean?
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SPEAKER_00
Go earn more?
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SPEAKER_00
I mean, OK, that s not so easy.
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SPEAKER_00
Spend less?
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SPEAKER_00
That isn t going to work.
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SPEAKER_00
So now what do you do?
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SPEAKER_00
OK, you have this debt that you then monetize.
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SPEAKER_00
And that s why it s classic.
2
SPEAKER_00
So yes, that s why these cycles occur, because what has created before, what happened before created the lay of the land that is then increasingly difficult to deal with.
2
SPEAKER_01
So what can great leaders do in this moment?
2
SPEAKER_01
I mean, maybe my sense is leadership is crucial here.
2
SPEAKER_01
So for example, to do very large projects that invest in the education system, that sort of try to fix the fundamentals or maybe invest more and more into the innovation and the development of new technologies and so on.
2
SPEAKER_01
it feels like that just doesn t happen organically.
2
SPEAKER_01
So you have to have strong leaders that convince the populace of the importance of these ideas.
2
SPEAKER_00
Well, I completely agree with your list.
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SPEAKER_00
What we have is a situation where everybody
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has their opinions and they have to sort of get them exactly right and they all fight with each other about whether their opinions so the most important thing
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is that we are become bipartisan so that we don t and we get over our differences.
2
SPEAKER_00
I would have a bipartisan cabinet.
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I would draw upon both members of both parties, the moderates who are going to be able to work together.
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SPEAKER_00
So as then we have one country
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And then we deal with those in a means that works for the majority of the people in the middle rather than the polarity.
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I think our greatest risk is in not being able to do that.
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SPEAKER_00
So I would say that s a paramount importance because we have the resources, you know, wealth, real wealth and science and everything has never been better than it is.
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but the notion is that it has to work for the majority of people and we have to keep it being productive.
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So that group has got to calmly and knowledgeably work together so that they increase the size of the pie and they create broad-based prosperity.
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SPEAKER_00
So that is of paramount importance.
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Whatever they do, if they do it that way, I can say I m happy about because that other alternative is the really scary alternative.
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SPEAKER_01
The scary alternative.
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SPEAKER_01
The different ways it has evolved throughout history.
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SPEAKER_01
Some of it has led to wars.
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SPEAKER_01
what are the future trajectories that lead to a potential war with China?
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SPEAKER_01
Cold war or hot war?
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SPEAKER_01
Is this something you think about?
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SPEAKER_01
Is this something you re worried about?
2
SPEAKER_00
Yeah, I d like to talk about both wars.
2
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So the war with China, as I said, there are five kinds of wars.
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There s a trade war, technology war,
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geopolitical influence war, capital war, and military war.
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As far as military war goes, I think it s only a Taiwan issue, but that s a big issue.
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SPEAKER_00
And we could talk about that for a minute.
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But those others, they ll be rough competitions.
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And we ll have that type of evolution over a period of time.
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That s what that war looks like.
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Taiwan has been, for a long time, a sovereignty issue to China.
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And it has its roots in what s called the 100 Years of Humiliation.
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From the 1840s to 1949, foreign powers came in, took advantage of China.
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They had the Opium Wars and such times.
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And that represented the 100 Years of Humiliation.
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SPEAKER_00
And Taiwan represents is their sovereignty and their important thing.
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SPEAKER_00
And 50 years ago, starting 50 years ago, there was an agreement that there is one China and Taiwan is part of China and that there would be peaceful reunification.
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SPEAKER_00
The peaceful reunification hasn t happened.
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SPEAKER_00
And in their view,
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That s a very big issue, and so it s a big contentious issue, and that could produce a military war, could produce a military accident.
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SPEAKER_00
It s a very tense situation.
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SPEAKER_00
And if we had a military war, God help us.
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SPEAKER_00
because of the capacity in all different new ways to inflict harm on each other.
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SPEAKER_00
But anyway, that s that.
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SPEAKER_00
If you don t have that military war, you ll have the competition between those other kinds of wars, and whoever is strongest in those areas will win.
2
SPEAKER_01
Where do you put cyber war within the five?
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SPEAKER_00
Well, cyber war is a military war.
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SPEAKER_00
I m assuming the type of cyber war that you re referring to is that which it s used to inflict pain on the other party through cyber.
2
SPEAKER_00
So cyber wars, you ll see cyber war.
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SPEAKER_00
You could see space war.
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SPEAKER_00
You can see drone warfare.
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SPEAKER_00
New types of warfare, not just the traditional and nuclear type of warfare.
2
SPEAKER_00
But you could see any of the above.
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SPEAKER_01
What are the defining characteristics, what are the interesting things about Xi Jinping, the president of China, as a leader on the world stage?
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SPEAKER_00
His father was a early leader.
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SPEAKER_00
He was himself, in the Cultural Revolution at times, treated brutally.
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SPEAKER_00
And during that period of time, it was very, very difficult.
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SPEAKER_00
And he came up, you know, through the ranks and is a very intelligent man.
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SPEAKER_00
When he first came to power, they, as you know, they have two five-year terms.
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SPEAKER_00
And we re now coming to the end of the second of those five-year terms.
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SPEAKER_00
When he first came to power, he felt that there should be a lot of reform, and reform meant moving to much more of a market and open economy.
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SPEAKER_00
When that happened, him coming in, I had some contact with
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SPEAKER_00
economic policy makers, but in the circumstances then, were that five major banks lent to state-owned enterprises and local governments with implied government guarantees.
2
SPEAKER_00
And so there was not control of that, and the movement to a more of a market economy, and the development of markets was a primary.
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SPEAKER_00
And also, the dealing with the corruption issue.
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SPEAKER_00
There was a lot of corruption prior to that, and that was viewed as an existential threat to the system.
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SPEAKER_00
So that became the primary objective.
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SPEAKER_00
And then as time progressed,
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over those 10 years, there was a lot of changing in their financial circumstances, opening many, many other markets, particularly getting money to small and medium-sized enterprises and developing a lending system and then establishing controls on it.
2
SPEAKER_00
So right now there s a vibrant capital markets, you can raise capital, you can be an entrepreneur, you can become a billionaire.
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in the capital markets and they developed the markets to be the second largest capital markets.
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SPEAKER_00
At the same time, they had to deal with their rising debt issue, which they began to deal with really about four years ago.
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when the second term began and then Liu He became the vice premier responsible for that and to deal with those issues.
2
SPEAKER_00
So you see right now that what s happening is the dealing with the real estate bubble.
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SPEAKER_00
There was a development in real estate, a bubble,
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which produced a lot of unproductive lending.
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SPEAKER_00
And Xi Jinping said, you know, houses are meant to live in, not to speculate on.
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SPEAKER_00
And so that was wasteful.
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So they established what they call three red lines, which are financial ratios.
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that the property developers had to live within, and that is then causing the adjustments that are going on now, which in my view are very healthy because whenever there s bankruptcies and so on, most in the public think, okay, that s a problem.
2
SPEAKER_00
It s in many cases really a cleaning up of bad debts and bad practices, and so that s what s going on.
2
SPEAKER_00
So that s, let s say, economically.
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SPEAKER_00
At the same time, there is the changing relationships, the changing world order, the changing relationships with the United States and other countries, which is becoming much less cooperative and much more warlike, much more confrontational.
2
SPEAKER_00
Those two things, the domestic debt problem and the investing, has led to what they call core leadership, which means a leadership more around him that is less challenging.
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SPEAKER_00
because they believe in history that during very difficult times a more centrally controlled decision-making process lends itself better than to a more fragmented political contentious project.
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SPEAKER_00
And that s basically what s going on now.
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SPEAKER_01
You said it very eloquently, but you mean the leadership is surrounded by yes men and there s a lot of centralized control.
2
SPEAKER_00
That characterization is much more black and white than it really is.
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SPEAKER_00
But it leans towards that direction.
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SPEAKER_00
Like, for example, of the standing members of the Politburo, four are more allied to him, three are less so.
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SPEAKER_00
You have to understand that it s kind of a collective leadership at the top, and then, of course, there s just jockeying for power in a highly political sense at the top.
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SPEAKER_00
But no one leader can be successful against
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SPEAKER_00
all those powers at the top.
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SPEAKER_00
So it s very politically negotiating.
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SPEAKER_00
It s very much more like if you put in the United States the Democrats and the Republicans and they had to be in the same government and they work it out, it s kind of something like that.
2
SPEAKER_00
So that s that struggle, but it s an internal struggle.
2
SPEAKER_01
Where do you put the importance of some of these ideas at the founding of the United States?
2
SPEAKER_01
Now we re talking about the context of China, the freedom of speech, freedoms.
2
SPEAKER_01
What China is doing with the central management of a lot of things, it s enabling a lot of growth, but it s also limiting
2
SPEAKER_01
people on the very basic level in terms of freedom, the kind of freedom that I think can lead to entrepreneurship, to starting new businesses, to having big dreams and chasing those dreams and then creating totally new things in whatever the space, maybe in technology, in business and whatever.
2
SPEAKER_01
How important is that as a metric for society?
2
SPEAKER_00
Well, they have a view, which is the idea of a dialectic, which means that everything comes with pros and cons, and two opposites exist.
2
SPEAKER_00
and you want the benefits of those two opposites, and how do you deal with the benefits of those two opposites?
2
SPEAKER_00
So let s say you want the capital markets because it gets money into the hands of the entrepreneurs who are motivated, they build fortunes, and that drives an economy to do very well, and at the same time,
2
SPEAKER_00
It produces the other problems, the wealth gaps, the other problems, then the debt cycle that we re talking about and so on.
2
SPEAKER_00
And Deng Xiaoping, you know, how do you reconcile communism and the market economy and the capital markets?
2
SPEAKER_00
And he famously said, it doesn t matter if it s a white cat or a black cat, just as long as it catches mice.
2
SPEAKER_00
In other words, if it works in making the country richer, then that becomes the objective, and then they move that along.
2
SPEAKER_00
So there are these conflicts.
2
SPEAKER_00
And one of the leaders described it to me as follows, because it s confusion and it goes back over a period of time.
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SPEAKER_00
There s a hierarchy and it s an extension of the family, he described it.
2
SPEAKER_00
And he said, the United States is a country of individuals and individualism.
2
SPEAKER_00
And that is its vibrancy that we see.
2
SPEAKER_00
The individual rights to speak up, the individual protection of the individual, individual property rights and all of those things is of paramount importance.
2
SPEAKER_00
And we build our organization.
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SPEAKER_00
That s why democracy is from the bottom up or even a company will get together
3
SPEAKER_00
and will be partners to prosper together.
3
SPEAKER_00
That is the American approach.
3
SPEAKER_00
He was describing that in China, it s an extension of the Confucian family, essentially.
3
SPEAKER_00
And so it s almost like, you know, there s a hierarchy.
3
SPEAKER_00
And so what they think about is the common good.
3
SPEAKER_00
not the individualism.
3
SPEAKER_00
So for example, if they want a high-speed rail to go from one place to another, and that s best in the common good, then the individual protections that would stand in the way of doing that would be of secondary concern.
3
SPEAKER_00
So that notion of controlling.
3
SPEAKER_00
So for example, what they re doing with video games.
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SPEAKER_00
They control what type of video games and how many hours a day kids can be on video games operating in that way, because they believe that that s good for the society and that s very controlling.
3
SPEAKER_00
In the United States, I think probably most parents would say, leave it to me, and it s a matter between me and my kids.
3
SPEAKER_00
The same thing has to do with data.
3
SPEAKER_00
In other words, in the United States, who controls the data?
3
SPEAKER_00
Does the company control the data?
3
SPEAKER_00
Do you individually control the data?
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SPEAKER_00
And so the inclination would be to figure that out, but nobody would say that the government is going to control the data because of our inclination of really anti-government control.
3
SPEAKER_00
In China, it would be that the government will control the data because that s going to be best for the society and it depends who you trust.
3
SPEAKER_00
So that difference in philosophy is very much at the heart of that.
3
SPEAKER_00
As far as your question in terms of effectiveness, it really is, in China s case, it s how you balance the things, right?
3
SPEAKER_00
So what they re attempting to do is to create a lot of freedom and creativity in areas that are not political, let s say.
3
SPEAKER_00
And so you see a lot of entrepreneurship, you see a lot of product development, you see a lot of creativity.
3
SPEAKER_00
happening in that way.
3
SPEAKER_00
So the stereotype that you don t see creativity happening is an old stereotype, whereas a lot of creativity is certainly happening.
3
SPEAKER_00
And the system can work well if they can achieve that kind of balance.
3
SPEAKER_00
It s proven to work well.
3
SPEAKER_00
Since I started going there in 1984, per capita income, real per capita income, has increased by 26 times.
3
SPEAKER_00
The,
3
SPEAKER_00
longevity rate is increased by 10 years.
3
SPEAKER_00
The poverty rate has fallen from 88% to less than 1% in terms of, you know, basics like starvation and things.
3
SPEAKER_00
And if you read history, Plato s Republic, you know, he talks about the cycles, democracy, you know, and autocratic and the benevolent despot and all of that, each has their own vulnerability.
3
SPEAKER_00
The vulnerability of democracy, which has been a remarkable, remarkable system, and I don t have to extol the benefits of it, but the vulnerability of it has always been the internal conflict that produces itself as anarchy.
3
SPEAKER_00
In World War II,
3
SPEAKER_00
for democracies chose to be autocracies because there was internal disorder and there was the belief, will somebody bring about order and get control of this situation?
3
SPEAKER_00
You know, that was in Germany, Italy, Japan, and Spain.
3
SPEAKER_00
They were parliamentary systems that turned themselves over to that.
3
SPEAKER_00
So both systems have vulnerabilities.
3
SPEAKER_00
I think the main thing that we need to think about
3
SPEAKER_00
is those vulnerabilities.
3
SPEAKER_00
Democracy is an amazing system because the adherence to the rules and the system and the checks and balances is quite amazing.
3
SPEAKER_00
And it gives it a flexibility to change without civil wars.
3
SPEAKER_00
But there has to be the respect of the rules.
3
SPEAKER_00
And when you see something like they will not accept
3
SPEAKER_00
or they will not accept rules.
3
SPEAKER_00
History has shown when the causes that people are behind are more important to them than the system, the system is in jeopardy.
3
SPEAKER_00
So we have a situation that s very much like that in terms of, let s say, the 2024 elections.
3
SPEAKER_00
I believe that there s a very high chance that neither side will accept losing.
3
SPEAKER_00
for example, and so we have that kind of a situation.
3
SPEAKER_00
So one would hope that one could rise above the disagreements and rely on the system for resolving disagreements, because if that doesn t happen, then we have our own chaos.
3
SPEAKER_01
So the kind of the trend that started in 2020, or I mean, I suppose it s been there, it s been growing.
3
SPEAKER_01
One representation of this internal disorder has been the growing trend of being skeptical about the results of the election.
3
SPEAKER_00
Well, it started before that.
3
SPEAKER_00
There was the emergence of populism before President Trump was elected.
3
SPEAKER_00
He was basically elected as a populist because there was a large percentage of the population that felt that the system didn t work for them.
3
SPEAKER_00
And he tapped into that.
3
SPEAKER_00
And he was largely elected as a populist leader, first populist leader in a developed country.
3
SPEAKER_00
And so populism began then.
3
SPEAKER_00
And that was a battle of one group against the other group.
3
SPEAKER_00
And so since then, it s been like that and it continued to grow.
3
SPEAKER_01
You ve mentioned the vulnerability of democracy, that internal disorder is the vulnerability of democracy.
3
SPEAKER_01
What s the vulnerability of a system like China?
3
SPEAKER_01
Maybe one way to say is put China aside and look at history, look at Soviet Union.
3
SPEAKER_01
What s the vulnerability of a communist type system?
3
SPEAKER_00
Well, I ll call it both communist and autocratic.
3
SPEAKER_00
Sure.
3
SPEAKER_00
depending on how much autocracy, is that it lacks flexibility.
3
SPEAKER_00
It lacks the ability, but I should deal with them differently.
3
SPEAKER_00
In other words, there s the economic system.
3
SPEAKER_00
The economic system threatens motivation and productivity.
3
SPEAKER_00
So communism or socialism has to be done in a way where you can threaten productivity.
3
SPEAKER_00
Capitalism has, and what I mean by that, I mean free markets and capital markets,
3
SPEAKER_00
have been an effective way of allocating resources and also creating the incentives and the resources, providing the resources for the inventiveness of new ideas.
3
SPEAKER_00
And so if I compare that
3
SPEAKER_00
What the Chinese have done, to a large extent, is to recognize that and have made a move.
3
SPEAKER_00
That s why the seeming dialectic or the conflict between those two things exists.
3
SPEAKER_00
But anyway, that s it.
3
SPEAKER_00
As far as an autocratic system,
3
SPEAKER_00
rather than one man, one vote from the population up.
3
SPEAKER_00
The risks of the autocratic system is that there s enough discontent that arises that the system doesn t have the flexibility and that rather than bending, it breaks.
3
SPEAKER_00
That s the big risk.
3
SPEAKER_00
The notion of trying to control a population
3
SPEAKER_00
if there s that, rather than giving it the flexibility.
3
SPEAKER_00
So that would be the big risk of the autocratic system.
3
SPEAKER_01
What s the human, because you mentioned like the top gets bigger with empires, and you start taking things for granted.
3
SPEAKER_01
Is some of this just human nature?
3
SPEAKER_01
So the concern with China,
3
SPEAKER_01
with autocratic nations, the concern with the Third Reich, the Soviet Union, was that fundamentally at the individual level, the humans involved at the top, they start becoming, they re starting to lose touch with the reality in a way that no longer makes them, I guess that s the representation of the flexibility that you re referring to.
3
SPEAKER_00
Well, I mean, in a democracy, you could change.
3
SPEAKER_00
You can go as far left or as far right.
3
SPEAKER_00
You could change the leaders easily.
3
SPEAKER_00
And so the people don t become, you know, they pretty much only have themselves to blame.
3
SPEAKER_00
You know, and one of the problems of that is they may not choose the best leaders.
3
SPEAKER_00
but they have that flexibility.
3
SPEAKER_00
So vote and you get what you wanted.
3
SPEAKER_00
In the case of the autocratic, let s say leaders, and then the movement from democracies to autocracies, what you see normally that movement is that one of the systems is not working.
3
SPEAKER_00
Let s say the democracy is not effectively, everybody s arguing with each other and nobody s getting anything done.
3
SPEAKER_00
You know, like Mussolini, the trains are not running on time.
3
SPEAKER_00
And that would be the example.
3
SPEAKER_00
Geez, this place has gotten chaotic.
3
SPEAKER_00
Will somebody get to control?
3
SPEAKER_00
And then you get the autocratic, and then he s autocratic enough to boss people around.
3
SPEAKER_00
And then you follow those kinds of orders.
3
SPEAKER_00
And it s like maybe a CEO in a powerful company ordering around, and that could work well or it could work badly.
3
SPEAKER_00
You know, most companies are run as like autocracies in a sense.
3
SPEAKER_00
You know, there s the hierarchy and the command economy and that kind of thing.
3
SPEAKER_00
And that can work well or not, but then quite often when you get the populist autocratic, their personality is something that they want to fight.
3
SPEAKER_00
and they become more nationalistic, and they tend to become more militaristic.
3
SPEAKER_00
And human nature at that stage lends itself to fighting.
3
SPEAKER_00
There s an arc here that when we think of a country and we say we, and we think of a country,
3
SPEAKER_00
It s not true, it s not like that.
3
SPEAKER_00
There are individuals who change.
3
SPEAKER_00
One generation dies and another generation comes along.
3
SPEAKER_00
And one of those arcs is that the ones who have been through war don t wanna go to war and are more happily willing to abide by whatever the rules are.
3
SPEAKER_00
as you get farther along into that cycle, and you get a new generation, and they forget about wars and the horrors of wars, then they want to fight.
3
SPEAKER_00
And so you re seeing right now the emergent of fight for right.
3
SPEAKER_00
And what that means is you see it internally, fight, where are you, and fight for that thing.
3
SPEAKER_00
And they mean fight.
3
SPEAKER_00
And then into externally, fight.
3
SPEAKER_00
Are you going to be the strong one who will fight and win?
3
SPEAKER_00
And that develops on both sides, this fight and win.
3
SPEAKER_00
And each side is cheering each other on into a war.
3
SPEAKER_00
But that comes by those who really have not experienced war because it comes in their part of their lifetime.
3
SPEAKER_01
Humans are fascinating.
3
SPEAKER_00
Humans are fascinating.
3
SPEAKER_00
And by the way, human nature has not changed over the thousands of years.
3
SPEAKER_00
So it s so interesting, because like in doing this study, and it comes across in the study, it s like watching the same movie over and over again.
3
SPEAKER_00
You see the arc and you see it happen over and over again.
3
SPEAKER_00
The only things that seem to change are the clothes people wear and the technologies they use.
3
SPEAKER_01
Yeah, and then somebody probably will disagree with you about the clothes.
3
SPEAKER_01
Maybe there s also cycles within fashions.
3
SPEAKER_01
Maybe we re not even creative there.
3
SPEAKER_01
What do you make of Russia and Vladimir Putin?
3
SPEAKER_01
What do you think about Putin as a leader, as a human being on this world stage within the context of the cycles of empires that you think about?
3
SPEAKER_00
Well, Putin came to power at the failure of Russia s last order.
3
SPEAKER_00
So there was the end of communism.
3
SPEAKER_00
and there was the development of the market economy, the collapse of the Soviet Union.
3
SPEAKER_00
And at that time, he was appointed by Yeltsin, who was an alcoholic and had problems managing, and was put into power.
3
SPEAKER_00
And the conditions in the Russia were, there was anarchy,
3
SPEAKER_00
There was no money.
3
SPEAKER_00
It had the classic end of cycle ingredients.
3
SPEAKER_00
It was broke, it was people were fighting with each other, it was in the anarchy, and that s when he came to power.
3
SPEAKER_00
And there were not institutions.
3
SPEAKER_00
The whole thing had collapsed, and it was not effective ministry of education, ministry of anything.
3
SPEAKER_00
And so the idea was that they needed 25 years of stability, and they needed a democracy, and they needed the improvement of capital markets.
3
SPEAKER_00
So he s been in that position as a, I guess I would call him a semi-autocratic leader in that,
3
SPEAKER_00
from all indications, he would respect the democracy and he s very popular.
3
SPEAKER_00
He s won democratic elections because he s been a strong leader and he s brought peace and stability to Russia after the breakup of the Soviet Union.
3
SPEAKER_00
And
3
SPEAKER_00
He s a strong leader in pursuit of the country s interests in a way where Russia is not a significant economic power, but it is a significant military power.
3
SPEAKER_00
So the issues, and then there s a strong alliance between Russia and China now.
3
SPEAKER_00
So that s kind of the lay of the land.
3
SPEAKER_00
And then there are sensitivities.
3
SPEAKER_00
The Ukraine issue is a sensitivity because of, there are a lot of Russians who live in the Ukraine, and there s also the issue of NATO on their border.
3
SPEAKER_00
So there are those kinds of things, and he has military power, and he has a strong alliance with China, and I guess that s my best summary of what his position is.
3
SPEAKER_00
Strong leader, popular,
3
SPEAKER_00
These are not subjective interpretations.
3
SPEAKER_00
These are objective interpretations.
3
SPEAKER_01
Yeah, it s interesting, just in this conversation, you re not sort of doing the usual criticism of any one particular system.
3
SPEAKER_01
You re looking at these systems from the perspective of history.
3
SPEAKER_01
You re just describing how they work.
3
SPEAKER_01
It s often times when you talk about what Russia is
4
SPEAKER_01
today or what the Soviet Union was or what China is today is you start to criticize, well, they do this kind of censorship or they do this kind of, they limit freedoms in this kind of way.
4
SPEAKER_01
But you re just kind of describing this as a nation with ideas what they think is right.
4
SPEAKER_01
This is how they hope to get it to work.
4
SPEAKER_01
This is why it s working.
4
SPEAKER_01
This is what s not working.
4
SPEAKER_01
Here s metrics that show that it s not working.
4
SPEAKER_01
I think that s a refreshing way to think about it.
4
SPEAKER_01
It s easy though, I mean, you got some criticism saying that I think China s a strict parent.
4
SPEAKER_01
You know, some people criticize these countries for doing, for violating human rights.
4
SPEAKER_01
I suppose there s some people that criticize the United States for violating human rights.
4
SPEAKER_01
But what are your thoughts on the world stage today
4
SPEAKER_01
about some of the behaviors in this government in terms of respecting the rights, the basic rights of human beings.
4
SPEAKER_00
You described accurately how I just tried to look at things in a non, I don t want to impute my values on anybody.
4
SPEAKER_00
I mean, there are intolerable things, so I m not saying there aren t intolerable things.
4
SPEAKER_00
But one of the great things of being an American here is that I grew up with all different nationalities having all different points of view and all different religions and all different ways of operating.
4
SPEAKER_00
And I ve come to treasure the fact that that is, what s their business is their business.
4
SPEAKER_00
And then the question is, where do you cross the line under what circumstances that others have got to do it my way.
4
SPEAKER_00
And then when you do it internationally, the issue of what is a sovereign state, which, as I say, in the piece of Westphalia, and you have borders, and then when do you cross the line, that my way of doing things has gotta be their way of doing things, or what are the various rights?
4
SPEAKER_00
And so that s a very delicate question, or a very difficult question.
4
SPEAKER_00
And we all have responsibilities to different parties and we all have different levels of knowledge about those particular things.
4
SPEAKER_00
So for example, as an international investor, I have a responsibility to my investors.
4
SPEAKER_00
Those who run companies have a responsibility to theirs of how do they run that.
4
SPEAKER_00
So if you re taking Nike or Snickers and so on, and Americans can decide whether they want to buy Chinese products or not buy Chinese products,
4
SPEAKER_00
we are all faced with those types of choices.
4
SPEAKER_00
So you have, what do you want to do in your constituency?
4
SPEAKER_00
And you have your choices.
4
SPEAKER_00
And then beyond that, in many cases, the issues are quite complex.
4
SPEAKER_00
Like there are geopolitical questions that enter into it.
4
SPEAKER_00
So, and then I believe that if you disconnect it, if all those,
4
SPEAKER_00
If entities like myself, the businesses, doing business with China disconnected, I think that that would be disastrous, economically disastrous, and it would also reduce the understanding that comes from working together that helps to reduce wars.
4
SPEAKER_00
And so these are all complicated.
4
SPEAKER_00
So what we do is, and who makes it, my opinion matters the most.
4
SPEAKER_00
Why should it be my opinion that matters the most in making that decision?
4
SPEAKER_00
So I largely look at the government guidance that I get not only from my own government, but from the other governments, and I follow the rules.
4
SPEAKER_00
I m in 40, we invest in 40 countries.
4
SPEAKER_00
and we wanna do that in the best way to provide the diversified portfolio, and we sort of need that.
4
SPEAKER_00
Every one of those countries has similar complexities.
4
SPEAKER_00
There are always one issue or another, and there s only so much that we really understand about all of those issues, so we rely largely on the guidance that we get.
4
SPEAKER_01
Yeah, you have to empathize and show respect to the culture of the place, the way things are done.
4
SPEAKER_01
You don t necessarily,
4
SPEAKER_01
The way you heal relationships between nations is like you said, you work together.
4
SPEAKER_01
And that requires kind of to listen maybe more than you talk.
4
SPEAKER_01
And I think people in the public sphere talk a lot about China without really listening, without understanding much about China.
4
SPEAKER_01
One of the things that makes me really sad because I know how to speak Russian and I know how much is lost in translation.
4
SPEAKER_01
It makes me sad that I ll never really get to know the Chinese culture because I ll never really get to know the language, the literature, just talk to regular people.
4
SPEAKER_01
It s not just the government or officials or scientists, just regular folks get the culture.
4
SPEAKER_01
I think if you don t understand the culture,
4
SPEAKER_01
just the basics of the human nature, what people love about their country, about their family, what kind of hopes they have, what kind of values they have.
4
SPEAKER_01
Without that, you re not gonna be able to...
4
SPEAKER_01
fully connect with them, and you have to do that first to have a chance of building a good world.
4
SPEAKER_00
I couldn t agree with you more.
4
SPEAKER_00
I was very lucky because, as I say, since 1984, so for more than half of my life,
4
SPEAKER_00
I ve been going there and the common people and all sorts of people, and I ve got to meet them.
4
SPEAKER_00
I don t speak the language, but a combination of through translators or them speaking English and being in situations, I had my son go to school, a local school, and we developed those kinds of understandings.
4
SPEAKER_00
I think that, but the not wanting,
4
SPEAKER_00
to know the other perspective is the thing that s most scary.
4
SPEAKER_00
Like I m right now in the middle and all I want to try to do is to help mutual understanding.
4
SPEAKER_00
You re right.
4
SPEAKER_00
If there were questions probing me, asking me, what is it?
4
SPEAKER_00
I m not on one side or another.
4
SPEAKER_00
I don t want to be on one side or another.
4
SPEAKER_00
I believe that each has their right within there to approach their different culture in their own way.
4
SPEAKER_00
So many ways you gave an example.
4
SPEAKER_00
if they re not doing harm to others.
4
SPEAKER_00
But that issue of trying to understand is so much better.
4
SPEAKER_00
That doesn t mean agree with.
4
SPEAKER_00
Um, if you are wanting to out clever and out compete somebody, it still pays to understand what they re thinking.
4
SPEAKER_00
So to achieve understanding of what they re thinking, even if you want to go to war with them, that understanding is the best thing to have.
4
SPEAKER_00
What we have now is a situation in which there s an enemy mentality and that means that anything that serves, seems to be like understanding or conveying understanding seems to mistakenly create the notion of I m on their side in a war and that s kind of a dangerous thing because there s a momentum here to fight.
4
SPEAKER_01
Henry Kissinger praises your new book, and you thank him in it, in the dedication.
4
SPEAKER_01
What s your relationship like with him?
4
SPEAKER_01
What makes him interesting?
4
SPEAKER_01
Maybe what makes him controversial?
4
SPEAKER_01
What makes him such a central figure in history?
4
SPEAKER_00
First, most importantly, he s unique about seeing things through all the other s eyes.
4
SPEAKER_00
So if you were, it s like there s a chess game.
4
SPEAKER_00
I mean, I think geopolitics is like a chess game, but with multiple chess players playing the same game.
4
SPEAKER_00
So imagine there are six people around playing the chess game and he could sit in each seat and he could know how they see it.
4
SPEAKER_00
Okay.
4
SPEAKER_00
And see it in a calm way of how they see it.
4
SPEAKER_00
He s unique in that way.
4
SPEAKER_00
He s 98 years old and he s equally able to do that.
4
SPEAKER_00
And he has a background that in which he s a historian.
4
SPEAKER_00
So he really understands history super terrifically.
4
SPEAKER_00
He doesn t understand economic history as much, so that s why, to some extent, we enjoy having a conversation, because he s interested in the economic piece he doesn t know, and I m so interested in the geopolitical piece that I don t know as well.
4
SPEAKER_00
But anyway, he s able to do that, but not only a historian, but a practitioner.
4
SPEAKER_00
So when you go from an academic
4
SPEAKER_00
to a practitioner who has that talent to see things through others  eyes in an objective way and to be strategic rather than just tactical, that s a very special person and that s why Henry is, to me, a very special person.
4
SPEAKER_01
Yeah, he s lived a fascinating life.
4
SPEAKER_01
Just all of the world events he s been involved in is fascinating.
4
SPEAKER_01
And like you said, that s such an interesting skill to have, to consider what are the concerns, the hope, the dreams, the fears of all the people at the table.
4
SPEAKER_01
What are they thinking?
4
SPEAKER_01
I find that people don t, once again, don t do that enough when it s the obvious thing you should be doing, whether it s business deals or political negotiation or geopolitical negotiation.
4
SPEAKER_01
I m often surprised, again, sorry to go to the Russian thing, because I hear Putin talk in Russian,
4
SPEAKER_01
and you start to infer certain intentions, like not the trivial stuff, like the human being.
4
SPEAKER_01
What is that human being hoping for himself, for his country, for his close inner circle, for the bigger, and I just see that that s often just lost in translation.
4
SPEAKER_01
I just see like American leaders talking to Putin, and it s just not, there s not a connection.
4
SPEAKER_00
Absolutely, I know exactly what you re talking about.
4
SPEAKER_00
It has never failed that in my listening to a conversation, or even reading a speech, and you see then it reported,
4
SPEAKER_00
Inevitably, the reporter picks some headline characterization that has very little to do with what was really happening, but might be a headline grabber that s at some kind of distortion, and there s a lack of understanding of really what s going on.
4
SPEAKER_01
If it s okay, let me ask you a couple questions about cryptocurrency.
4
SPEAKER_01
You ve had a few opinions about Bitcoin over the years.
4
SPEAKER_01
What are your thoughts about Bitcoin today, its role in the global financial system and just in human society in general?
4
SPEAKER_00
Well, the evolution of Bitcoin over the years is one of the things that has influenced changes in my view.
4
SPEAKER_00
It has proven itself.
4
SPEAKER_00
Um, something like 10, 11 years ago, imagine the programming of this and here s the, you throw it out and that s the idea.
4
SPEAKER_00
It has not been hacked.
4
SPEAKER_00
It has, um, um, operated.
4
SPEAKER_00
It is built.
4
SPEAKER_00
It has come an amazing way.
4
SPEAKER_00
over that 11 years to be maybe probably the most excited topic among a lot of people and has been used and is now has obtained the status of having imputed value.
4
SPEAKER_00
At the same time, it is one of those assets that is an alternative money.
4
SPEAKER_00
I think we re entering an era where there s going to be a competition of monies.
4
SPEAKER_00
Because of the printing of fiat money and the depreciated value, there will be a competition of monies.
4
SPEAKER_00
And Bitcoin is part of that competition, but there ll be many monies, not just crypto monies, but there ll be central bank crypto monies, but there ll be different kinds of monies.
4
SPEAKER_00
And even monies are things that you buy and sell.
4
SPEAKER_00
NFTs can become a money.
4
SPEAKER_00
a type of money.
4
SPEAKER_00
You own it and it s an investment and you could say I d rather own it than own Bitcoin.
4
SPEAKER_00
Has Ray Dalio bought any NFTs?
4
SPEAKER_00
Not yet.
4
SPEAKER_00
Okay.
4
SPEAKER_00
But only just because like, I definitely want to buy NFTs to just experience them.
4
SPEAKER_00
Like I think I should produce one.
4
SPEAKER_01
And I should... I should have asked that, have you minted an NFT?
4
SPEAKER_01
You probably should, just to know what it s like.
4
SPEAKER_00
Yeah, that s right.
4
SPEAKER_00
This stuff is happening.
4
SPEAKER_00
This stuff is real, okay?
4
SPEAKER_00
And how it operates.
4
SPEAKER_00
But like all new real things,
4
SPEAKER_00
Some are gonna go and some are gonna, you know, it s like in the internet in the year 2000, you know, pets.com could have been a great, but maybe pets.com doesn t make it and who knows.
4
SPEAKER_00
That s the beauty of the competitive system that ll evolve and some things will be treasured and some things will be trashed.
4
SPEAKER_00
So, but when I look at it, I think we are in an environment of, you know, what is an alternative money?
4
SPEAKER_00
A money has two purposes, a medium of exchange and a storehold of wealth.
4
SPEAKER_00
And we are looking for, and it s portable, and it s best if it s recognized in other countries.
4
SPEAKER_00
So gold is one of those.
4
SPEAKER_00
So I look at it as an alternative gold, but I look at a number of things as an alternative gold.
4
SPEAKER_00
And I think that, and gold is still my favorite.
4
SPEAKER_00
because of certain qualities.
4
SPEAKER_00
For example, you can t trace it.
4
SPEAKER_00
In Bitcoin, you can trace who owns it, where it s going, and so on.
4
SPEAKER_00
Governments can have that ability to trace it and so on.
4
SPEAKER_00
A gold piece of coin, it s not connected.
4
SPEAKER_00
I think not connected has benefits, particularly in a world where maybe connections can be more risky.
4
SPEAKER_00
And then also gold has been for many thousands of years universally recognized as a source of money.
4
SPEAKER_00
And central banks, it s the third largest source of money in central bank reserves.
4
SPEAKER_00
And I don t think Bitcoin is going to serve those types of purposes and so on.
4
SPEAKER_00
So for various reasons, I prefer gold to the other, but it s a little bit part of my mix.
4
SPEAKER_01
But then you look at it, it hit I think 69,000 this year is the high Bitcoin hit.
4
SPEAKER_01
Do you think it s possible, you mentioned gold, do you think it s possible it reaches very high numbers like one million that some people talk about?
4
SPEAKER_00
I don t think that s possible because the way I look at it is there s a certain amount of, a certain amount of it.
4
SPEAKER_00
and there s a certain amount of gold.
4
SPEAKER_00
I ll use gold as a benchmark.
4
SPEAKER_00
The amount of it is worth about $1 trillion.
4
SPEAKER_00
Total crypto s about 2.2 trillion.
4
SPEAKER_00
But let s say Bitcoin.
4
SPEAKER_00
It s $1 trillion.
4
SPEAKER_00
If you take the amount of money that is in gold that is not used for jewelry purposes and not used by central banks, and I assume Bitcoin won t be used for jewelry purposes or central bank purposes,
4
SPEAKER_00
That amount in gold is about $5 trillion.
4
SPEAKER_00
So right now, if you were to have a portfolio that has gold and crypto, gold and Bitcoin, it s worth about 20% of the value of gold.
4
SPEAKER_00
Do I think it s going to be worth more than gold in terms of that mix?
4
SPEAKER_00
I don t think it ll be worth more than gold, but let s say
5
SPEAKER_01
it became worth as much as gold?
5
SPEAKER_01
I don t believe it will be.
5
SPEAKER_01
I think that 20% sounds kind of about right.
5
SPEAKER_01
I really don t know what the right answer is.
5
SPEAKER_01
And then there s the question of what is all of that pool of money that let s say gold and gold equivalents relative to everything else?
5
SPEAKER_01
Does it go from, you know, let s call it
5
SPEAKER_01
6, 7, 8 trillion to 16 trillion, maybe it could double, it depends what it is in the world environment.
5
SPEAKER_01
But basically if you use gold as a measure, it just makes no sense that it s going to be used that much more.
5
SPEAKER_01
Am I sure about that?
5
SPEAKER_01
I m not sure about anything.
5
SPEAKER_01
But logically, it seems to me that there s a limitation on its price in relationship to other things that are like it.
5
SPEAKER_00
Let me ask for your deep financial analysis on a very important issue.
5
SPEAKER_00
I just talked a couple days ago to Elon Musk.
5
SPEAKER_00
He wants to put a literal Dogecoin on the moon.
5
SPEAKER_00
What are your thoughts about Dogecoin?
5
SPEAKER_00
And do you think it ll be the official currency?
5
SPEAKER_00
Maybe a reserve currency on the moon and on Mars?
5
SPEAKER_01
My reaction is, that s cute.
5
SPEAKER_01
I remember Elon, when he first got, he first got his money from PayPal.
5
SPEAKER_01
I think he said to me, it was,
5
SPEAKER_01
He got $180 million, $90 million.
5
SPEAKER_01
He decided to say, why aren t we going to outer space?
5
SPEAKER_01
And he wanted to take a spaceship that would be modified using Russian technology to put a
5
SPEAKER_01
a plant and a watering can on the moon, or on Mars, I think it was.
5
SPEAKER_01
And he said, first life on Mars, or first life on that, as an inspiring notion.
5
SPEAKER_01
And so then there s always what s behind it.
5
SPEAKER_01
I have a lot of respect for Elon s ability to do other things behind it, and so I would take that as symbolic, and I d be asking him what s behind it, what s next.
5
SPEAKER_00
And I m also just on the topic of Dogecoin and memecoin, and there s some aspect of humor and lightheartedness that s really interesting about
5
SPEAKER_00
the way we communicate what ideas become viral, how to captivate people with ideas.
5
SPEAKER_00
There s something about taking things too seriously that somehow slows it all down, and it s interesting.
5
SPEAKER_00
That s part of human nature somehow.
5
SPEAKER_00
So like humor is part of this whole thing.
5
SPEAKER_00
You ve talked about the importance of writing ideas down.
5
SPEAKER_00
And you have a fascinating- Principles in particular.
5
SPEAKER_00
Principles.
5
SPEAKER_00
And you have this really nice thing in your book where you actually, I mean there s such a brilliant way, sorry, you have such a brilliant way of highlighting which parts are extra important and you make them bold.
5
SPEAKER_00
That s a brilliant idea.
5
SPEAKER_00
But let me just ask the high level question of what s a good system for taking notes?
5
SPEAKER_01
Well, I find that almost everything happens over and over again.
5
SPEAKER_01
And we re in the blizzard of these things happening.
5
SPEAKER_01
And what I found is that if I m making a decision
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that after I make the decision usually, or right at the time, if I pause and reflect, and I write my principle down, in other words, principle is sort of a recipe, what would I use to, how would I make that decision, and what are the criteria around it, I find that I make it much more clear, it becomes clearer,
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And it applies to the next thing that comes along, it ll be that way.
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Because everything happens over and over and over again.
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And I think people make the mistake of looking at just the one like it s the first one.
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I don t know, they have the...
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first problem of this sort of the first child or whatever it is.
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And this has been happening plenty of times.
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And so if you have the principles, I found that that helped me think more clearly about it.
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And it helped me communicate better, like why.
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And so over the years, over the last 30 years or so, that s what I ve done.
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I did it originally to communicate very well with the people I work with.
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I set up my company, and it was very important to have good communication.
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And then we could debate the principles, and so that s the process.
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I urge people to do that.
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There are many excellent decision makers, and I just wish that they wrote down their principles.
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So for example, we talk about Henry Kissinger, and his new book is gonna come out with a book on leadership.
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And don t just describe the leaders.
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Describe then what about them were the essential elements to make a good leader under what circumstances.
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And so if we think about that, then also then you begin to think in a principled way.
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And then when you start to think in a principled way, life becomes, it s so much easier to make decisions and it s so much less confusing because it s like coming up on a species and you say, okay, well, what species is it?
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Not just another, it s a thing.
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No, what species is it and how do I deal with that species effectively?
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And so that s what that is.
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And so I encourage people to write it down.
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I wish anybody who s successful wrote down their principles or their recipes for making those types of decisions.
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So the events of interest here happens over and over and over in similar ways as you re looking for the patterns and you re defining the process that s right to respond.
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to those patterns, and you call that the principles, and that allows you to deal with the future effectively.
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So that codifies the lessons from the past to be able to deal with the future.
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What advice do you have for young folks today?
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In high school, in college, thinking about how to live, have a career they can be proud of, or maybe have a life they can be proud of?
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Know yourself, follow your passion,
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Make your work and passion the same thing while considering the money part, because money will get you freedom and choice and be able to make that.
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But if you know yourself, feel the pull and pursue that passion.
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And along those lines, by the way, I found that using personality profile tests has been very helpful.
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I ve used those for about 25 years for people to help to understand themselves and understand each other.
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So I created a free one that is called Principles U. It s online.
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It s had remarkable,
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Loving people who ve taken it learn about themselves But also you can put in somebody else and it ll tell you about your relationship with them That s like 30 minutes.
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It s a quick discovery But the main thing is to understand on your journey your hero s journey when you re that you will have mistakes and you will have weaknesses and to
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Understand those, not fight those, because by understanding mistakes, you will learn not to make mistakes again.
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I have a principle which is pain plus reflection equals progress.
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And so that reflection is important to know yourself, know your pulls, know your weaknesses.
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And when you also know your weaknesses and the strengths of other people, there are people who have strengths where you re weak and you have strengths where they re weak.
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And to be able to work well together is the most effective way of achieving success.
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So yeah, it s that journey, and there s a life arc, and there s a journey, and you want to make it the best that you can make it.
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And it has, it s like a video game.
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It has the challenges and the obstacles and the learning experiences and the temptations and all of that.
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And the maximizing learning to go where you wanna go to achieve the life you want is the most important.
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That s kind of maybe a long-winded way of saying it.
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But to learn, I think, I ll try to say it simply.
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There s a five-step process.
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Step one is know your goals.
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Know what you re going after.
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You could have almost anything you want, but you can t have everything you want.
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And so you have to prioritize and you move in that direction.
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on the way to your goals, you re going to encounter your problems and your obstacles.
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So identifying step two is understanding your problems and your obstacles, identify them.
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Step three is to diagnose them to get at the root cause of the problem.
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And that could be,
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many root causes, but it could also be your weaknesses or weaknesses of others, but you have to be objective about them.
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Once you diagnose them, then you go to step four, which is to design a way to get around them.
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And then after you have that design, you implement that design.
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So you have to follow through and do it.
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And you do that and that will then produce its new results which should be better results.
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I call this kind of the looping process.
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It s the evolutionary looping process.
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And you just keep doing that and you learn over a period of time and you move in the direction that you want.
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Last question, and you only have one minute to answer it.
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You dedicate the book, quote, to my grandchildren and those of their generation who will be participants in the continuation of this story.
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May the force of evolution be with you.
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So let me ask, where is this force of evolution taking human civilization, and what in this story that evolution is writing gives you hope?
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a direction toward improvement, and the greatest force is man s capacity to adapt and invent.
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And so you see in the charts in the book,
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you see that this upward movement, life expectancy, health, all the things that we think are better, you see there s a chart and it shows that over a period of time and you barely see
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the downturns from depressions and wars in that.
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That is the greatest power.
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Man s ability to invent and adapt is evolution, and that s the greatest power, and that is what gives me justifiable hope.
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And a continuation of that, like we mentioned, with Elon, maybe we ll become a multi-planetary species.
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So not only will we keep creating amazing things here on Earth, we ll keep expanding out into the cosmos.
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My time horizon doesn t have me analyzing that yet, but I hope so, and I agree that,
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that would be the natural trajectory.
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So I m not gonna ask you for the best financial system on Mars.
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I think we ll focus on Earth for now.
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Ray, thank you so much for your brilliance, for the books you ve written, for the works you ve done, for the inspiration of millions.
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And thank you for spending your valuable time here with me today.
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Thank you.
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Thanks for listening to this conversation with Ray Dalio.
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To support this podcast, please check out our sponsors in the description.
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And now, let me leave you with some words from Ray Dalio himself.
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Every time you confront something painful, you are at a potentially important juncture in your life.
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You have the opportunity to choose healthy and painful truth or unhealthy but comfortable delusion.
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Thank you for listening and hope to see you next time.