Ray Dalio talks hogwash on The Great Chinese Empire

He’s seriously biased:

Just as there is a human life cycle that typically lasts about 80 years (give or take) and no two are exactly the same but most are similar, there is an analogous empire life cycle that has its own typical patterns.  For example, for most of us, during the first phase of life we are under our parents’ guidance and learn in school until we are about 18-24, at which point we enter the second phase.  In this phase we work, become parents, and take care of others who are trying to be successful.  We do this until we are about 55-65, at which time we enter the third phase when we become free of obligations and eventually die.  It is pretty easy to tell what phases people are in because of obvious markers, and it is sensible for them to know what stages they are in and to behave appropriately in dealing with themselves and with others based on that.  The same thing is true for countries.  The major phases are shown on this chart.  It’s the ultra-simplified archetypical Big Cycle that I shared in the last chapter.

In brief, after the creation of a new set of rules establishes the new world order, there is typically a peaceful and prosperous period.  As people get used to this they increasingly bet on the prosperity continuing, and they increasingly borrow money to do that, which eventually leads to a bubble.  As the prosperity increases the wealth gap grows.  Eventually the debt bubble bursts, which leads to the printing of money and credit and increased internal conflict, which leads to some sort of wealth redistribution revolution that can be peaceful or violent.

Typically at that time late in the cycle the leading empire that won the last economic and geopolitical war is less powerful relative to rival powers that prospered during the prosperous period, and with the bad economic conditions and the disagreements between powers there is typically some kind of war.  Out of these debt, economic, domestic, and world-order breakdowns that take the forms of revolutions and wars come new winners and losers.  Then the winners get together to create the new domestic and world orders.

That is what has repeatedly happened through time.  The lines in the chart signify the relative powers of the 11 most powerful empires over the last 500 years.  In the chart below you can see where the US and China are currently in their cycles.  As you can see the United States is now the most powerful empire by not much, it is in relative decline, Chinese power is rapidly rising, and no other powers come close.

Given US naval superiority remains extreme that is a pretty stupid chart of “relative standing”.

As well, the notion that CNY will ever be a reserve currency does not pass the laugh test. The moment it opens up it collapses, exposing China to a debilitating external shock as capital flees. Capital controls are now permanent as a result.

As well, the two empires you need to focus on for the future of China are Russia and Japan not the US.

After an almighty spike in power they both faded away. Why? Because they were in some real respects fake empires.

Russia was a centralised capital misallocation monster that couldn’t compete with the US as it wasted trillions on armaments as living standards fell. China has exactly the same problem in its fixed asset investment, particularly, empty apartments, and its growth is bogging down inexorably as a result.

Japan was a mercantilist power, short of just about every natural resource including young people. Eventually this trashed its growth path. China is a continental economy but is also short of many essential commodities plus an over-reliance on exports and its demographics are even worse than Japan. American demographics are much better.

In short, China is lumbered with both the Russian and Japanese curses.

There is no doubt China will be a great power. But it is going to be largely regional and shift into decline over the next decade, thereafter wasting much of its time desperately trying to hold together as living standards stagnate.

The US will decline relatively also. But at a much slower pace.

Houses and Holes
Latest posts by Houses and Holes (see all)


  1. Andy McPherson

    >”Given US naval superiority remains extreme that is a pretty stupid chart of “relative standing”.”
    Perhaps. But it is very likely that the US Navy is still prepared for WW2, their last major war.

    Things have changed. Modern technology allows a $5 million missile to knock out a $25 billion aircraft carrier.

    Just as most navie in the 1930’s ignored the coming of airpower and submarines, so many modern navies ignore changes in technology.

    Here’s an interesting finding from Flinders University that Covid-19 is very unlikely to be a naturally evolved virus:

  2. Yep, China will grow old before its gets rich.

    Enduring riches = enduring military power

    It is as it has always been.

  3. Them was the old days…..we are all resource constrained now, which is the difference and prosperity will be falling continually now world wide for the next thirty years.

    Those who can fashion a polity that can thrive during de-growth will rule the world………present financial and economic systems have had their day and will be going in the bin. A new Karl Marx is needed to construct something that works on a different groundwork…….we won’t know what until it happens.

    • You got a time line in mind?

      I thought Dalio was making a good argument and the charts were great. He presented data not conclusions. Pointing out some common red flags and identified leading and lagging factors.

  4. China controls and directs capital flows and has been very influential in Aust property property and mining and thus is very very influential in Aust politics.
    The current hyping up of anti-china feeling will be solved at China’s leisure by writing a chq to someone ( beef industry, barley, etc ).
    I hope I am wrong, but China is very close to winning Asia ( Aust included ).

    • agree to a point. Many Asian countries are wary of China but that doesn’t mean they are not going to go along and make friends. US regime change policies and total disregard of international law makes countries think China may not be as bad as many say.
      If US does not change its way then there is real possibility for China to raise as No1 power in the world. But it’s not going to be easy for China to achieve that. Without Russia’s help I don’t think they can actually do it and if it wasn’t for Hillary and CIA, Russia would have been happy to do a deal with US.

        • that’s the deal between most countries and the US. Only few countries are treated bit better by US and we are lucky to be in that small group. Go and ask an average South and Central American what they think of US.

          • Agreed. But you said it “we are lucky to be in that small group”. We have been very lucky. I would guess that is because will share many values of Americans as well as Brits and France Germany etc.
            Unless your family is from Sth America, I would assume you are more concerned with Australia future living standards and freedoms.

          • Go and ask an average South and Central American what they think of US.

            The ones climbing the border fence at San Diego desperate to get into the US? Actions speak louder than words.

          • yep, those ones John. Because their countries are run by US puppets who only look after US corps. Rest of them are from countries that are crippled by US sanctions.

      • You’re delusional. Who’s going to make friends with the Chinese in the region? Vietnam, the PI, Japan?

        • Some will. And to be clear I am not saying China are the good guys but US is not helping itself by behaving in same way as China. Your problem is that you see US regime changes around the world as spread of democracy instead of what they really are – installing puppets that will allow US corps to loot that country’s natural resources and use its population as slave labour.
          If US changes its way then all countries will lean towards US as everyone loves capitalism – problem is we lost capitalism long time ago.

    • Not to the point in which sovereignty is threatened. I wouldn’t be surprised by an Anglosphere superstate that also included South America.

      • that is possible. But South America will be forced via regime changes and not because its people want to.

  5. – I can agree with all things mentioned in the post except for one thing. I.e. the US will “go down the drain slowly”. Given the giant US debt load I fail to see how the downturn will be “gradual”. People are talking about the PETRODOLLAR saving the US are overlooking that PETRODOLLAR is actually (much) “weaker” than many people believe. I DO think the PETRODOLLAR is actually on “its last legs”.

    • Debt doesn’t matter when you have a strong military and are self sufficient in food and energy and ammo.
      It may not be fair or pretty, but them is the facts.
      USA may fracture from within, or be defeated in a Asian located war, but unlikely occupied by a foreign power.
      Australia on the other hand is very vulnerable and way too complacent

      • – The US may have a big military but all those military machines/equipment cost(s) A LOT OF money. Once US interest rates rise (yes, I have predicted that many times before) it doesn’t matter what the size is of one’s military. The combination of a shrinking US Trade Deficit and rising Budget Deficits of over USD 1.2 trillion is VERY detrimental for the economic (and military) future / health of the US. That’s why Dalio is right when he thinks that there will be a “New Order”. it will be an order in which the US will play a (much) smaller role than today. The current “World Order” will also (like the giant debtload in many countries) be “restructured”.
        – Look what happened to the Soviet Union. People thought that it would last forever. But it collapsed as a result of “Economic weakness” in the late 1980s. Similar story for the British Empire and the Roman Empire.(think: “Imperial overstretch”)
        – And the US is “toast” when (NOT IF) the PETRODOLLAR system collapses.
        – I think that we are moving away from the US Empire “controlling” the world and moving towards a world with several REGIONAL (military ??) powers with a regional “sphere of influence”. Australia could be part of a regional “sphere” with e.g. India and one or more countries in South East Asia. Other regions could be Europe, China, North America. Something along these lines. But the current “World Order” is (you may like it or not) on its way out.

        • I mostly agree. The US no longer needs to be the global super power, because it has become energy independent and with Canada and Mexico as partners, they can become self sufficient in most things.
          From 1945, US needed to be THE global super power, firstly to defend again USSR and secondly for middle east oil supplies.
          Since the fall of USSR, the order continued allowing globalization to flourish with the US picking up the defense bill on behalf of the rest of the world. Today, the US has realised that its not working for the US anymore ( middle class etc ). The US will pull back to Nth America. The rest of the world will need to sort its own security. The implications for Aust are unknown and worrisome.

          • – The PetroDollar mechanism is (sometimes) poorly understood. It has nothing to do with the size of US oil imports.
            – The fact that oil and other commodities are priced in USD is enough to force other countries (on a net basis) to run a Current Account Surplus and that means that those countries FORCE the US to run a Current Account Deficit and that – in general – subsidizes the US (complicated story).
            – But this PetroDollar is NOT a “one way street”. Once the US Balance of Payments turns from a Deficit into a (chronic) Surplus (and that includes US miilitary spending !!!!) – for whatever reason – the PetroDollar is bound to break down.

    • A lot of people have gone bankrupt predicting the demise of the USA. It’s the leper with the most fingers left.

  6. PalimpsestMEMBER

    Remember things change slowly, then suddenly. For example, the US has splintered faster than hoped. This is in part due to asymmetric information warfare. Let’s look at some outcomes – Some decades ago the US was the major player in the Middle East. Today it’s Russia. Some decades ago the US was the major player in Asia/Pacific. China hasn’t emerged a clear winner, but it does have a firm stronghold. The US has walked away from any leadership or even a collaborative role in dealing with a world-wide pandemic. Instead of continuing the sound, but steady growth of the previous administration, it injected unfunded stimulus and with a downturn, is facing a bigger blowout than needed. Nor does society seem cohesive with armed insurgents in state capitals.
    Asymmetric warfare also applies to a military that has developed a dependency on high technology to project force while minimising personnel numbers. Certain groups in China are mentoring and developing hacker groups that develop independently, but combined are a multi-pronged force. Chinese self-driving software looks like it needs a lot more work, but is installed in commercial vehicles in Europe, and is developing.Their micropayments infrastructure is right through society there, even used by beggars, in a way that no Western country can handle. I’m concerned that the current US advantage may not be maintained without affordable access to education or a sound economy. I still remember how fast the USSR vanished.

    The USD is no longer just a reserve currency, it has been weaponised. Europe would love an alternative. China is offering a crypto alternative as a potential end run. Maybe it will work, maybe it won’t, but some Aus companies are taking payment in Yuan. I must note that current China diplomacy makes countries reluctant to embrace the Yuan as a reserve currency either. No winners here yet.
    None of this means these changes are inevitable, but they have become possibilities. It could be that China burns out and we see the rise of India, or Australia. China always looks like it could fracture. The US could once again become the “United States” but the culture seems hopelessly focused on individualism as its highest value for it to unify on much. Corruption is seen as being clever, and Inspector Generals and FBI dismissed with impunity if they even sniff at the entrenched trough.

    So, when we say how much China needs Australia for coal and iron ore … I’d be cautious how loudly we say that. It might not mean what we think or work the way we expect. If we ever get to the point we really need an ally, it might just be only little NZ in our corner unless we ensure a Trump Hotel and a Trump Golf course here. (I’m serious about that suggestion if we want US protection).

  7. Any European nation that manages to pass laws (and maintain them) that guarantee a pathway away from the multicult and back to sustainable 90~95 % White homogeneity, whilst avoiding war, will have a prosperous and healthy 2020~2100 even if it involves some sacrifice of unnecessary luxuries (annual 5 star holidays, a new Benz every 3 years etc). Any that do not can only face dispossession, marginalisation, increasing inequality, deceasing safety, increasing tyranny (to keep a lid on it all) and eventually civil war, potentially with foreign involvement to protect “local interests” – their own.
    We’ve tread the multicult high immigration path. It has marginalised us and enriched the few and the new (foreigners) at the expense of those that were here, and born here, relatively to where they would be otherwise.
    You cannot decrease marginalisation of those who are here by continuing to import voters that have different ethnic, social and political interests. The most incredibly racist people on the planet are those that see nothing wrong with reducing Whites to a minority in nations they founded, settled and/or are indigenous to. Policies with the same inevitable consequences of dispossession and demographic replacement, falling on non-Whites, are (rightly) considering horrific human rights crimes, active genocides but when befalling Whites “justice” and “anti-racism”.
    We must stand strong. We must spread the word. And being ‘anti-racist’ in the context of actually being anti-White, must become as socially unacceptable as being “racist” was in 2016.
    Loving all and embracing all does not need to mean settling all nor settling others in great numbers.
    Welcoming people here for the best 3 months of their life, and then sending them home after a fantastic holiday is not evil, it is absolutely normal for almost every non-White society on Earth, where their nations and demographics are not up for sale or dispute.

    It is okay to say no.
    “I want to live there” – No.
    “I want to work there” – No.
    “I want to study there” – sorry our limited places are full, pleas apply against next year – No.
    “I want to buy a house there” – No.

    “Wow you must really hate Vietnamese people”
    – No.
    Actually it was seeing how amazing and special their nation is, and how great they are, that made me realise how horrible it would be for them to lose that, for Vietnam to be changed into a place that is less Vietnamese.. and through that learnt that my (previous) embrace of removing the Anglo-ness of Australia was profoundly wrong and unjust. Repeat for every other nation on earth, ALL of which are amazing, and deserving of the right to keep demographic change to a slow burn, which enabled them to be sustainably unique and whole in the first place.

    Being against dispossession for all does not mean legalised pogroms against everyone without blue eyes, it means realising mistakes have been made and the current path is unjust. As much Anglo Australians realising they have a duty and right to preserve themselves, as others now resident here realising it would be profoundly wrong and immoral for them to articulate any other path for this nation. As it would be UTTERLY wrong for me to move to Vietnam and argue it should become African, Anglo and Icelandic. Or if I had and raised children there, for them to argue the same.

  8. – Dalio is WAY too optimistic about the (rosy) future of China.
    – A much darker view is that Australia, China and the US are going to fall apart each into say anything between say 10 to 40 separate independent states.

  9. I have observed Ray Dalio since the mid-1990’s. At first, I was a huge fan, he would often take issues and analyse them in depth with a good deal of thinking, much of which was original. Today, not so much… Instead of his writing taking him to a conclusion, he seems to start with the conclusion and work backwards.

    On China, he’s simply wrong. Their economy is in deep trouble and their currency is going to come under intense pressure over the next 1-2 years – but with the West turning its back on China (as it is doing at a very rapid pace) China’s trade balance won’t surge as it may have in the past. Instead, the economic conditions within China will deteriorate to the point where civil issues are going to become a major challenge.

    US has proven for 244 years that its constitution – guided by the enlightenment – is robust to many stress tests including a horrendous civil war, two world wars, invasion but the world’s leading power (1812) and multiple depressions. China doesn’t have a constitution, it has the rule of man and if the Emperor isn’t wise (as this one clearly isn’t) then things go wrong.

    • First intelligent post on the thread. What a bunch of disillusioned morons here.

      • – The US already has become an olichargy, a banana republic with the trappings of a democracy (Constitution, parliament, elections. etc.). But these things are only a facade to hide who is really “pulling the strings”.

        • I read your ridiculous statement the first. Any fool who believes that the USA isn’t consistently capable of changing itself is in for a hiding. That’s what the poster above me was essentially saying. And he’s right. So many thickos here in the Arse.

          • One example is in how the last ten years the change to legalise cannabis in the USA

            I Think a number of people still think of the USA through the eyes of 90-00’s b-grade sitcoms.

            I have never personally been to the USA but certainly looks more agile in the wild than any other country.

    • – From what I see I only can conclude that the Constitution already has died. Is a dead letter. The good folks in DC and other state capitols only care about lining their own pockets.

      • Yes, and the realization of this will cause mean reversion. How else do you explain Trump? Of course he’s not the leader who’s needed, but the trend is anti-beltway. Of course you wouldn’t understnd that living here, though.

        • – I am VERY well aware of what’s going on in the US and in the beltway. Thanks to an invention called internet.

    • – The US already has become an olichargy, a banana republic with the trappings of a democracy (Constitution, parliament, elections. etc.).