It is very common to hear the phrase that “The world is going crazy”. Who can argue with that sentiment when we consider rapidly advancing technological and environmental changes, the steady decline in traditional institutions, increasing economic globalisation and a worrying growth in political polarisation? Maybe it’s not our perception of the world that is wrong. Perhaps the world really is going crazy.
That’s the conclusion one could draw from a comment made by Ray Dalio last week. Dalio is a 76-year old American billionaire and founder of one of the world’s largest hedge funds, Bridgewater Associates. He has written several heavyweight books about economics, politics and finance.
Last week, Dalio tweeted “It’s official: The current world order has broken down. In my parlance, we are in the Stage 6 part of the Big Cycle in which there is great disorder arising from being in a period in which there are no rules, might is right, and there is a clash of great powers.”
Ray Dalio developed his “Big Cycle” theory by studying several centuries of history. That was long enough to watch societies move from order to disorder and back again. Dalio asserts that the key underlying patterns only become obvious when you zoom out far enough to see multiple cycles occur multiple times in multiple different places. Each cycle typically spans 50 to 100 years. Now we’ve supposedly entered Stage 6, the final (and climactic) stage.
What are the different stages in Dalio’s Big Cycle?
Stage 1: A new order emerges after war/revolution. A new leadership consolidates power following a major conflict (such as civil war, revolution or war). Debts are restructured or monetised (i.e. paid off using money freshly printed by the central bank) to reduce debt burdens, wealth gaps narrow, and conflicts ease as people unite around rebuilding. This marks the “birth” or rebirth of the system with fresh momentum. Ireland in the mid-1920s and West Germany in the late-1940s would be examples of states in this stage.
Stage 2: Consolidation of power and building systems. Leadership further solidifies control and establishes effective resource allocation systems (institutions, governance, etc.). “Civil engineers” (practical builders like Konrad Adenauer or Lee Kuan Yew) thrive here, designing productive structures that improve education, competitiveness, and quality of life.
Stage 3: Peace and prosperity (the high point). The system works at its peak here: strong education, innovation, economic output, trade dominance, military strength, and often (for large countries) reserve currency status. There is strong productivity growth, favourable finances, and relative harmony. Examples include the 1960s in the U.S.A.
Stage 4: Excess, decadence, and widening gaps. Overconfidence leads to overspending, excessive debt/credit bubbles, wealth/political polarization, and declining productivity relative to earlier gains. Hubris sets in, eroding competitiveness. America in the 1970s exemplifies this phase with their economic (inflation/deflation) and political (Nixon, Carter, Reagan) rollercoasters.
Stage 5: Very bad financial conditions and intense internal conflict (pre-breakdown). Large deficits, unsustainable debt, money printing, and eroding borrowing power. Wealth gaps fuel intense ideological/political fights; moderates lose ground. Conflict escalates (but the system for resolving disagreements still functions to some extent). Dalio has placed the U.S.A. (and sometimes other powers) here in recent years.
Stage 6: Civil war/revolution or major breakdown. This is the stage that Dalio says has just begun for the USA (and probably, therefore, for us too). The system runs out of money/credit; the mechanism for peaceful dispute resolution fails. This triggers violent conflict (revolution, civil war, or equivalent restructuring), often with “inspirational generals” leading. The painful resolution in Stage 6 creates conditions for renewal. It destroys the old order, paving the way for a new one (looping back to Stage 1 after a new order has established itself).
I found it alarming recently rewatching the first episode magisterial Ken Burns TV series about the US Civil War. For the first episode covers the leadup to the breakout of hostilities. What was alarming for me were the political similarities with today. There wasn’t just widespread incomprehension that the other side (be it anti-slavery or pro-slavery) might hold its views. There was a belief that they must be evil to hold such views. They weren’t merely wrong or mistaken; they had to be malevolent and evil.
I often get that feeling when I say that I would have voted for Trump in the last US presidential election. If I had a vote in that election. It’s not that I’m a huge Trump fan. I’m not. I think he’s an ignoramus, a bully and using office to try and make as much money as he can. But I thought that Kamala Harris was an overpromoted mediocrity who, if elected, would have aggressively pushed identity politics, open borders and gender ideology. I would therefore have narrowly preferred Trump to Harris.
I had also read Victor Davis Hanson’s magisterial “The Case for Trump” and found it very convincing. While Hanson did not ignore Trump’s visible failings, nor did he ignore the unprecedented media hatred and legal witch-hunt that Trump was subjected to. On balance, Hanson came down in favour of Trump.
And while we’re on the topic of the current president making money, how come nobody seems to ever raise the question of how Barack Obama (retired community activist, senator and president) has assembled an estimated net worth of $70-135 million? It seems to me that the answer lies in the political sectarianism and grotesque one-sidedness that characterise much political debate and commentary today. That’s why I’m not surprised that Dalio has concluded that we’re now in the stage where society suffers a major breakdown. Let’s hope it’s not too severe and that the new recovery cycle isn’t too far away.