Will The US Dollar COLLAPSE? - China & Russia Declaring ECONOMIC WAR On America | Ray Dalio | Transcription

Transcription for the video titled "Will The US Dollar COLLAPSE? - China & Russia Declaring ECONOMIC WAR On America | Ray Dalio".


Note: This transcription is split and grouped by topics and subtopics. You can navigate through the Table of Contents on the left. It's interactive. All paragraphs are timed to the original video. Click on the time (e.g., 01:53) to jump to the specific portion of the video.


Intro (00:00)

Right now, one of the things that has me, the most unnerved is the attack on the dollar. So you've got the BRICS nations, for people that haven't heard that acronym before, Brazil, Russia, India, China, and South Africa, are getting together. And I know this has been going on for quite some time, so I don't know if I should be overly paranoid about that in this moment or not, but again, going back to those indicators that point to a transition from phase five to phase six, do you think there's anything that we can prepare for as we look at the big cycle, as we see this particular moment with the assault on the dollar, is there anything in the big cycle that can educate us on how to deal with this moment? Just all happens over and over, the decline of the British pound as a reserve currency. And before that, the decline of the Dutch Gilder as a reserve currency all happened for the same reasons, which is, two things are going on. First of all, they're holding all of this dollars and the stuff that we talked about is going on. And then also there's the weaponization through sanctions of the dollar. In other words, the United States is greatest weapon to use as distinct from its military weapon is sanctions. And so sanctions means you freeze other assets, you freeze assets, those assets are the bonds. And so that happened with Russia and there are threats a bit with other countries, China and so on. And there's kind of the thinking, well, if I hold the bonds, can that happen to me? And then why am I transacting in this other third currency rather than transacting directly? So for example, the United States, share of world trade has declined and China's share of world trade has increased to become greater. And so if two countries are trading, let's say Saudi Arabia is trading with China. Why do they buy, why do they go to the dollars in order to do that? No good reason to go to the dollars. And then they're worried about holding the dollars because they might get sanctioned. And so you see more of those transactions taking place in other currencies. And then the usefulness of the dollar as a storehold of wealth changes. It's like think about it in the most fundamental way. Everybody wants a medium of exchange in a storehold of wealth. So in other words, if everybody's using the dollar in world trade, then you want to save in dollars 'cause you say, okay, now that's the thing I spend in and I save in the dollars. But over time, as the share of world trade goes down, why aren't they denominating in who? Like China has a larger share of world trade. Traditionally, the countries that have the world's reserve currency have the largest share of world trade and the largest share of world capital flows. And because the United States has declined and also there's a worry about that, holding it because of sanctions. I mean, just imagine how the Chinese must feel about having a lot of money in treasury bonds. You know, like I would be worried that I would like be treated like Russia would be treated. It's not something I would want to hold as a safe asset. And what other countries like who might feel that they can get sanctioned. And for all those reasons, they're less inclined to hold.

Understanding Economic Cycles And Government Budgeting

Dollar Debt (04:46)

And when we call dollars, what we're really calling is dollar debt 'cause you don't hold, you hold dollar debt. And that's a, what is a debt? It's a promise to really receive currency. So, okay, so now getting out of those things and transacting in other currencies seems to be the safer thing to do for those countries. And so that's the dynamic that's taking place. So it's not an attack on the dollar. It's like, I don't want to hold those things. And so very similar to on the British pound, you know, what happened is the British had the war and they were the most powerful empire ever in the world. And they had World War II and they came out of World War II financially in debt, a lot of debt. And who held the debt? All these countries held the debt because that was the residual from that. But they had a problem, they had a debt problem. And so they needed to print more money because there was too much of a squeeze. And then you had, so it deteriorated and they sort of said, please hold my debt, please hold my debt. They went to common wealth countries, the part of those that were in the former British empire. And then you had the Suez Canal incident where there's sort of a war and everybody realizes, well, hey, wait a second, that British empire ain't the British empire and they're heavily in debt. And then they say, I don't wanna own that debt and they're went the British pound. So that's just how the mechanics work. - Okay, so looking at the US and I don't wanna be cheeky and say speaking directly to the US government, but if I were to be so bold, so if this is that predictable moment where, okay, there are actions that we can take as a country that will either help us keep the world reserve currency status and there are actions that we can take that will cause us to lose that status more quickly, it seems like, okay, you've got the BRICS nations, they are moving away from the dollar. It seems like that has already, that card has already been played. I don't know if you think there's anything that we can do to make that easier, but certainly speaking to printing, so one thing that I've heard recently and this is a really fascinating concept, that when you have other nations that are holding your currency, holding debt, as you said, they're not like hoarding cash, but they're holding a lot of debt. If we print money, what we're essentially doing is externalizing inflation. So we are causing a devaluation of that debt for all the countries that hold us. Now we're in a moment with rising interest rates that's causing us to need to print, but creating this really weird difficult moment where as we print, then we have a need to raise interest rates, but the reason we're having to print is because we're raising interest rates, so it's a very difficult moment. But if we could, going back to your idea, it's how we are with each other, if we could get people to come together in the middle, would one of the things we would want to convince the US government to do is to be very cautious about devaluing the dollar. Is that an important idea?

The reasons for the cycles exist. (08:41)

- It's more basic than that, and it's more simple, but it's also more difficult. What the reason cycles exist is that the next stage has been determined by what has already happened in the prior stage. So we are in debt a lot. You can't change that, we got a lot of debt. And if you say, what could you do, I mean, two things come to mind, what you could do is you could be financially strong, and you can not use financial sanctions as a weapon to scare the holders of those bonds. But to be financially strong requires you to not spend more than you earn. That means you either have to cut your spending or raise your earnings. Okay, that's, okay, that ain't easy. Okay, okay, so are we going to cut our spending? Okay, now you look at it. What are you gonna get? Infrastructure programs, I don't know, poverty transfers, defense spending. Okay, what are we gonna cut? The world, governments have the same basic economics as people except for the fact that they could take money from one person and give it to another, and they can print money. That's it. And so when you look at this, okay, you have that gap, you can eliminate the gap by taking money from some and eliminating another and not spending much. Okay. Okay, that's not easy, right? Okay, okay, what are you gonna... The most governments now don't think, how much money do I have to spend? And then how do I prioritize that?

What governments should be thinking when making budgets. (11:00)

They think, I need to spend on this. I need to spend on that, and I need to spend on that, and they spend on it, and then they either produce it, they produce a deficit. And then you either have to pay it back with hard money or printed money, and that's situation. So when you say, what could we do? Well, you've gotta get financially strong in a politically fragmented environment in which everybody wants more, and you have to, you know, like, be a higher percentage of world trade so that everybody wants to use your currency, and be, and not threaten the holders of that bonds with freezing their assets. It is a tall order in this moment. It has become so clear to me in the last month since you and I saw each other, how important, the reason that you keep coming back to it all comes down to how people treat each other. So in this moment, I don't wanna be a Debbie Downer, but it does feel like the dye is cast a little bit. I don't see how we pull ourselves back from the precipice because, to your point about being fiscally responsible, like we'd have to get into a position where we're making more than we spend. I wanna circle around to something, as you were talking, you mentioned infrastructure, and it got me thinking about, okay, what are things that we would need to go right? So I think everybody is aware, and I've heard you say that there are changes that are gonna need to be made to capitalism in order to bring back a thriving middle class and the importance of the thriving middle class, and you've defined the things, you know, again, staying to the theme of principles here of the three things that we need to do to be strong as a country or for any country, to be strong, and you said two parents in the home, great public education, and then equal opportunity. Where do you see us on those? Are we moving in the right direction, moving in the wrong direction? - Well, again, you know, maybe I aspire too much to two parents in the home. It's certainly better if you have two loving parents raising a family, that's good, but maybe that's too much to ask for. But in other words, good parental guidance, you know, okay, you're raised well, you're educated well. You can go to a public school that educates you well and you have good guidance, so you're well raised in a healthy environment, and not only do you learn, you know, skills and all that, but you learn how to behave well with each other, so you learn civility. And so you come out capable and civil to a land of opportunity in which you can, you know, work and have a good environment. And really that's all you need if a society does that, right?

Public education and COVID (14:27)

And I think you know where we, you know, the things that are going on, you know, education in a lot of public education is a, it's deteriorating, it's a real problem. My wife works to help the poorest school districts, the poorest people in the state of Connecticut. And the state of Connecticut is usually, it's always one, two or three in terms of the highest per capita income, and in the state of Connecticut, as of last survey, 22% of the high school students have either dropped out of high school, whoa, or have absentee rates, which are greater than 25% in our failing classes. So they're living in, they're living in areas that don't have the things I'm talking about, parents, nutrition and so on. And there's not adequate resources for them. For example, during COVID, we found that 60,000 students didn't have computers or connectivities to take classes. And the government wasn't gonna provide it. So philanthropically, we bought 60,000 computers and give it to the kids and we can't do that. So our society is, when you look at this, you see drugs, drug problems, you see how the cities are changing, the cleanliness of the cities, the education levels of the cities, mental illness, crimes and so on.

The failing systems in our society (16:07)

You're not seeing, you're seeing people fighting with each other a lot. Not all the time, there are wonderful places in the United States. Education, some of the best universities, but they're pockets, some of them, they're neighborhoods, but there is this encroaching. So you see infrastructure breaking down, school shootings, you know, like, okay, so you decide how we do it. - To hear more about Ray Dalio's warning on the upcoming recession, which we're almost certainly already in, watch the full episode here. Talk to me about the three forces that you see that are influencing this moment.

Significant Forces Influencing Current Situation

Ray's warning about three forces influencing this moment (17:23)

We've got banks collapsing, US dollars under attack, looming recession, what is,

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