Ray Dalio: Our System Is in Jeopardy - Debt, AI & the Cycle That Destroyed Rome

**Friedberg** (0:00)
Ray Dalio, welcome back to the All-In Podcast, third time's the charm. Thanks for being here.

**Ray Dalio** (0:04)
It's always a bless to be here. Thank you for having me.

**Friedberg** (0:07)
The last conversation we had was so popular, and it was so timely because it was just a few days actually after the inauguration of President Trump, and you had provided some very kind of prescient outlooks for the administration that I think we all thought would be very helpful to get on the record. At the time, you had highlighted, and as you have been for some time, this great debt cycle we're in, the fiscal and monetary policy issues that are driving that debt cycle, and provided some input that if we were able to cut our deficit to GDP to roughly 3%, we may have a shot at a smoother transition here. Today, the CBO estimates that the 2026 deficit to GDP is about 6%.
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**Ray Dalio** (1:45)
I studied these big cycles in history going back 500 years. And there are five big forces that are intertwined to determine the answer to your question, which is, there's the debt money one, and I'll take you into that in a minute. But there is the domestic gaps, the wealth and values gaps that are causing irreconcilable differences between the left and the right that is affecting how taxes, democracy, and everything works. There's the international great power conflict, the classic rising of a great power, challenging existing great power, and changing the international world order. Then there's technology, all through these cycles, there have been technology. And then there's acts of nature, droughts, floods, and pandemics. So, and when we think of orders, we're talking about, there's always a monetary order, and all monetary orders have broken down for the same reasons.
All political orders, domestic political orders, they all always change. In the United States, less so. We have 250 years here, but they always change. There was one civil war in there. And then, but internationally, they always change. All orders change. And the international geopolitical order going from a multilateral to a unilateral world order is changing. And certainly, technology is changing. Okay. So, getting that fact that they're all on there, now I'll go down to explain the government's finances and answer your question. The economics of a country are basically the same as the economics of a company or an individual, except the government has a ability to print money. Look at it like a company or like your own. Basically, it's projected to spend about $7 trillion, take in about $5 trillion. So it's running a 40% deficit, 40% of its spending. It's been running deficits for a long time. So it has a debt that is 600%, six times the amount of money that it takes in. And we can project that number. The problem with debt cycles, and you could see them transpire, they're almost like the circulatory system of the body. The capital markets bring credit to different parts of the economy. And if that credit is used to be productive and produces an income that pays for the debt service, it's a healthy process. But what happens is that if the income, the debt service grows relative to the income because it's not paying for it, it's like a plaque in the system growing up and it squeezes out spending. And so we now have that $2 trillion deficit. Half of that is interest payments. Plus, we have to roll over $9 trillion of debt that has been accumulated and is maturing. Okay, so now if you were to look at a company like that or an individual like that, you have that problem. So as a handy number, 3% of GDP would sort of stabilize the situation. Very unhealthy condition. It's not just unhealthy because it's squeezing out those spendings, but also because there's a supply and a demand. In other words, you have to roll over the $9 trillion of debt that's coming due, and you have to sell 2 trillion more, something like that, okay? So now you go to the buyers, and the buyers, who are the buyers? There are some domestic buyers and there are foreign buyers, about a third of foreign buyers, and now it's a riskier situation from their point of view. It's riskier. First of all, it's a lot to acquire.