Editor’s Notes: In this insightful interview, renowned investor Ray Dalio joins Tucker Carlson to discuss the cyclical nature of civilizations and why he believes the United States is currently in a “stage five” decline. Dalio explores the critical economic and political symptoms of this shift, including rising debt, domestic polarization, and the breakdown of the established global order. He provides a stark analysis of the risks associated with fiat currency and Central Bank Digital Currencies while explaining why gold remains a vital store of wealth. The conversation concludes with practical advice on how individuals can protect themselves by focusing on productivity and education to navigate the potential instability ahead. (Feb 9, 2026)
TRANSCRIPT:
The Cycle of Civilizations
TUCKER CARLSON: Ray Dalio, thank you very much. We spoke last year in exactly this place and you outlined in part the cycle that you see in civilizations vying for supremacy of the world. And not everyone, I think, kind of bought into your views on this and you were derided as Jeremiah is scaring people and everything.
A year later you have a new summary of ideas that you’ve been following formulating for a long time out this week. And about 18 people have sent it to me. And so I think we’ve reached a moment where people are ready to hear what you’re saying. So if you wouldn’t mind outlining in whatever detail you like the cycle that you see that countries go through and where our country, the US is in that cycle.
RAY DALIO: Gladly, yeah. So there’s a cycle, there are orders, there are systems, right? So there’s a monetary order. How does the economy work? You put in money, creates credit. People with credit take, do things with that. They borrow if they can earn enough money to pay back, the system works well. They create productivity, they create opportunities, the capital markets and so on. That’s the monetary system.
And the way that works and the cycle is that when there’s no debt, such as in 1945, we start a new monetary order. There’s no debt, there’s a system and it builds up over a period of time. And it’s a mechanics that when income, when debt service payments rise relative to incomes, it squeezes out other spending, the way it would do for you as an individual, the way it would do for companies, except governments can print money, but that squeezes out spending and that becomes a problem.
And then you also have a supply demand problem. So when you have a new monetary system, which the United States had the new monetary system and the dollar was the world’s reserve currency, then you can sell a lot more of the debt. So there’s a supply and a demand, right? And so when that builds up and everybody’s one man’s debts are another man’s assets and they build up holding a lot of dollar denominated debt, and then they sell a lot more debt, then there’s a mechanics of that supply, demand.
And then when you have politics and world politics, geopolitics enter into it, that monetary system is more at risk for those reasons. We’ll get into that. But the first force of these five forces is the mechanics of this process, which is the monetary system.
The Five Forces Shaping History
The second is there’s a domestic political order. All countries have an order, a system, and all these orders change. And they evolve. And of course that is connected to the economic system. And so when you get large wealth and values differences and there’s a sense that the system isn’t working for them and there’s greater polarity, there’s the emergence of populism, like in the 30s, you know, the left and the right and there’s that populism gets to the point that there are irreconcilable difference.
And in other words, the lack of willingness to compromise, the lack of willingness to accept loss, losing one’s vote and so on, but fight and win for me at all costs. Like in the 30s, four democracies chose to be autocracies because the polarity was so great and the willingness to go along with that democracy system ceased to exist. So that dynamic has happened throughout history.
And then the third is the geopolitical order. How countries work relative to each other. What’s the system? And after World War II we created a system, a multilateral system in which it was in some ways naive, but it was very different than existed before. In that by being multilateral, having a United Nations, a World Trade Organization, a World Health Organization, a World Court and all of those, the idea of being representative and they would make decisions in a certain rule based system was the path.
And of course the problem of that is that any system has to have its enforcement. And if the system as a whole, a multilateral system is not consistent with the interests of those who are the most powerful, power rules. And so you have the dynamic of the breaking down of that order, right? So we’re breaking down the monetary order in a very classic way. We’re breaking down the political order in a very classical way. We’re breaking down the geopolitical order.
So those orders we have to recognize throughout time, all of those orders have changed. There’s never been a time that they haven’t changed and haven’t broken down in their issues and they’re getting back to how they were in some ways in the past.
Number four is acts of nature. Drought, floods and pandemics have killed more people than wars. So you can’t ignore it as a big influence.
And number five is the inventions of new technologies, particularly, you know, fabulous new technologies come about and they’re important not only for prosperity, but they’re important in wars. You know, whoever wins the tech war wins also the economic and the geopolitical war.
There are tests of these powers and we’re in a power type of dynamic now, when you understand that that dynamic works through time and you get down to its individual symptoms. In other words, there’s in my book “Principles for Dealing with the Changing World Order,” which I wrote about five years ago, I took and I broke that cycle into five parts of the six parts of the cycle.
And like a disease, you can see the symptoms in those parts and you could see it progress and you could see the choices that exist at those stages. So when you’re in a different stage, the leadership has a different stage. And all I wanted to do, whether it’s in that book or in our conversation here today is to try to let people see that.
And I’m just a practical investor, right. For 60 years I’ve been a macro investor. So I have to bet on what the future is going to be like. I place financial bets on that. And now I’m at a stage in life that I want to pass that along. So I hope that we could talk about or look at that in a dispassionate way to say, how does the machine work to produce that.
TUCKER CARLSON: That’s exactly right. And you’re not casting judgments here, you’re just acknowledging what has happened and what therefore is likely to happen. Go back. I don’t want to let this pass. In the second factor that you described in this, the political factor, you pointed back to the very fraught decade of the 1930s and you said you had four democracies become a revert to autocracies because of the partisanship that became unworkable, they couldn’t reconcile and so they became autocratic. Is that a consistent principle, do you think?
From Democracy to Autocracy
RAY DALIO: Yeah, that’s you can look at it through Chinese dynasties, you can look at it through Rome, like who is in control, right. That they, you know, Caesar and the Senate and being stabbed right in the Senate. Plato wrote about this. I think it was like 350 BC he wrote about the cycle in the Republic. In other words, democracies and the challenge of democracies, where you vote and so on. But then there’s the wealth gaps and the rich gaps and then who has the money and then the not willing to vote. And then there’s the power that changes. Yes.
TUCKER CARLSON: So partisanship becomes gridlock, becomes irreconcilable, just mess. And then that evolves by necessity into autocracy.
RAY DALIO: Right. When I’m no longer willing to accept that the system, the rule of the system, because everybody thinks it’s rigged. Okay, is this the Supreme Court? Is it rigged because that partisan has more appointees and it won’t be fair. And so I remember when the Supreme Court was kind of the Supreme Court and we lived in at a time where we said the system is fair.
And the legal system, when you go in and you’re convicted, okay, is the legal system fair? And so on. And then you believe in that system with its imperfections and so on. When that ceases to be the case, when the causes that people are behind are more important to them than the system, the system is in jeopardy. Right?
TUCKER CARLSON: Yes, of course, by definition. And you know, all this is relevant to where we are now. So tribalism, whether it’s political or ethnic, but when people square off into tribes and they have no common ground and they have no hope of reconciling or compromising, then you’re getting a new system.
RAY DALIO: And you see it, it’s so interesting. It’s like watching a movie over and over and over again because then you see how it is. They make stereotypes of the other. The stereotype of this, that personality, the stereotype of that type, whether it’s an ethnic or economic or whatever it is. Oh, they’re one of those and I’m one of these. And now it becomes the stereotypes that are fighting. Right.
TUCKER CARLSON: Which are non human. Right. So it’s easier to…
RAY DALIO: There’s no empathy. There’s…
TUCKER CARLSON: It’s not a human being, it’s a stereotype.
RAY DALIO: It’s the fight.
TUCKER CARLSON: Right.
RAY DALIO: And so then you have to pick a side. I mean, one of three things. You have to pick a side and fight for it or you keep your head down and hope you don’t get shot or flee throughout history. Yeah. And that’s what’s happening.
TUCKER CARLSON: So you join effectively the civil war. You try and find a safe place domestically or you just split.
The Three Choices in Times of Conflict
RAY DALIO: Yeah, you, in other words, you’re quiet because you don’t want to get into the fight. You’re going to get injured. Right. A lot of people are scared now. Right. People you’d imagine never would be scared. Right. They don’t want to speak up or something. So you keep your head down. You either get in the fight and fight. Pick a side and fight for it. Throughout history, this is true. Pick a side and fight for it or keep your head down or in some cases flee. You know, people leave, they go from, you know, immigration. Think about how all the immigration largely has taken place.
TUCKER CARLSON: Right.
RAY DALIO: There’s some hell taking place in there and then they move to someplace else where there’s not. Here we are in the UAE. Okay. A lot of people are coming to the UAE because they’re fleeing in a sense. So there’s that dynamic. And so you can see many, many, many symptoms. Like there are things, you know, when it gets violent and when you get killing too many people, then you start to cross the lines, you know, like maybe in Iran. Okay, do we cross the lines and…
TUCKER CARLSON: Yes.
RAY DALIO: And then where you, you know, there are these symptoms and there’s financial, you know, how do you pay? So anyway, I’m rambling.
TUCKER CARLSON: No, you’re not rambling, but just back to the political. One last question. Is it ever resolved? Does the system ever intact when you get to a point where people just don’t want to compromise at all or even live in the same place? Have you seen any example of where people sort of decide, wait a second, let’s enter into power sharing and pull back before this gets violent or we get a king.
Can the System Be Saved?
RAY DALIO: In some places, sometimes in dynasties and so on. They’re but they’re not often. What happens is there’s a reversal or a fixing by somebody who can not who’s strong enough to deal with the issues. For example, we have a debt issue. We have all of these other issues and can bring people together. But there needs to be almost Plato would say the benevolent despot.
TUCKER CARLSON: Yes.
The Cycle of Decline and Financial Discipline
RAY DALIO: And that’s in his cycle. In other words, there’s somebody who can stop the fighting and be smart and impose the disciplines that are necessary. For example, there’s a financial discipline. How do we deal with the debt and all the supply, demand and so on? Can we raise taxes? Can we cut spending? What are we going to do to bring about a budget balance or not a budget balance, let’s say a deficit of 3% of GDP, which would sustain the set of circumstances?
What is that? Financial discipline? What is that way of working together so we do not do each other harm because we are at a point, let’s say, as we come to the next midterm elections, you know, and there’s a significant probability that the Republicans would lose the House and talk of even could be the Senate. Okay, now when you go after that and you imagine what the conflict can be like, how will that conflict work? Will it be rule of law, or will it be win at all cost? And as that win at all cost? And what that means, is there rules? Is there playing by the rules? You know, that dynamic.
So this thing is repeated. It’s not easy to get to that point because you have to deal with, you know, how do we stop fighting with each other and how do we do the right things to get strong? That’s. And that’s a great challenge in history.
TUCKER CARLSON: So where are we now, given the five factors that you outlined, where is the United States or even really the west will include Europe in this very familiar cycle of rise and fall?
Measuring National Strength: The 18 Indicators
RAY DALIO: In my book, I show 18 measures of health having to do with education, military reserve currency, a number of measures that shows strength. Okay, what is the level of strength? And the United States is the strongest power, which has been in relative decline and experiencing these conflicts. And that’s measured. If you go in the book “How Principles for Dealing with the Changing World Order,” you’ll see a number of charts.
So I don’t want to just pronounce it that way. I just want to say that, like, if you were to take education and you take scores, PISA scores and so on, and statistics you will see that there was a rise, there are rising powers, there are declining powers, there are large wealth and values differences. And we are in what is what I call stage five, which means we are sort of at the brink, but not over the brink.
In other words, we’re not. There’s a capacity to, it’s before a period of great disorder when there can be a monetary breaking down of the system. What is money? We should talk at some point what is money? And can money be an effective storehold of wealth and what happens if it’s not? And so we are at what I would call stage five in a six stage cycle. The six stage is when there’s a breaking down of these orders. We’re not there yet, but we are close to there and headed in that type of direction.
TUCKER CARLSON: What is a breakdown look like? What does stage six look like?
Stage Six: The Monetary Breakdown
RAY DALIO: Well, from the monetary point of view it is that there the demand for the reserve currency is not sufficient to meet the supply. So what that means is you see a supply demand problem, you produce a lot of supply and the demand’s inadequate. And all things being equal, there will be a rising long rate while the central bank is trying to hold that down by easing the short rate and shortening the maturity of the debt that it sells.
Okay, that dynamic and that then the currency, these debts and the currency falls relative to the non fiat currencies. In other words, like gold. In other words, you are seeing a movement by central banks as, and countries to hold gold as an alternative reserve currency partially because of that supply demand situation and partially because they worry that there may be a payments problem.
And the payments problem like it happened in Japan prior to World War II, you had an economic problem and the United States sanctioned essentially didn’t pay the Japanese their debt, the money in terms of that like a debtor creditor problem. And they didn’t make those payments much like Russia. You know, they basically took control because they have the ability to take control of the treasuries and other things. And so there is becomes more of a reluctance to hold that money as that and a movement more into the non fiat currency which is gold.
TUCKER CARLSON: That’s so in other words, other countries perceive a risk in holding dollars because. Well, for lots of reasons. But one of them is like if the United States government at the time doesn’t like you, they can grab your dollars.
RAY DALIO: That’s right.
TUCKER CARLSON: So not worth it.
The Risk for Both Debtors and Creditors
RAY DALIO: Right. And it’s a risk that both the debtor and the creditor have to each other. So think about China. And if you were thinking China, how do you feel about holding treasury bonds? Okay, so you may not feel secure about holding treasury bonds, both for two reasons. Because you could be sanctioned or you also because there’s a supply demand problem.
So you start to see the movement in that direction. And then of course, it’s also in that situation, governments want to control their supply demand. So they might establish foreign exchange controls, they might do certain things like that. But they also feel vulnerable. The United States can feel vulnerable if they can’t sell enough of those bonds to others. And that if the demand isn’t. Because then interest rates would have to rise because of supply demand. Too much supply relative to the demand.
TUCKER CARLSON: To make it more appealing to buyers.
RAY DALIO: Yes, but and also to cut the demand for credit. In other words, if the price rise, then people will borrow less and so on. And that then has the effect of mechanically slowing down the economy that produces that result. Which then what happens is then the central bank comes in and it prints money and it buys the debt which depreciates the currency. That’s the mechanics. That’s of the debt part of it that is related to the political and the geopolitical part of it that I’m answering.
TUCKER CARLSON: May I ask you something? So if foreign countries don’t want to buy your debt and your central bank decides we’re going to print more money and buy our own debt with it, which is what we’re doing, wouldn’t the people doing that stop and say, wait a second, this sounds like an electric windmill. Like what are we doing here? This sounds crazy.
The Trap: Print Money or Face Economic Collapse
RAY DALIO: They’re stuck. They’re stuck. They’re stuck. They’re stuck because they have a deficit and they’ll deficit will be there unless they raise taxes and cut spending or something. And that’s bad for the economy and it’s politically bad. Yes. Okay. Or you print the money and you make up the difference.
And so since the breakdown of the monetary system in 1971, that was when there were too many claims on gold and we had a system attached to gold. And because they were in August 15, 1971, I remember it well. I was clerking on the floor of the New York Stock Exchange after my, after college, before I went to graduate school, Richard Nixon gets on August 15, Sunday night, he gets on the television and he says, we’re not going to allow the conversion of that paper money into gold. And we’re not going to. You won’t get your gold.
And then I walked on the floor of the Stock exchange the next morning. I thought, this is a big crisis. And what they did is they essentially printed. And then we had the stagflation of the 70s. But I was very surprised. And I found out I didn’t never threw anything like that before. I studied history. I found out they did the exact same thing in March. Roosevelt did the exact same thing in March of 1933, right after he got inaugurated. Right, okay. For the same reasons. Okay. Because your choice is to have a lot of defaults and a debt problem or to do that. Right. That’s how it works. That’s how the machine works.
So. And at the end of the day, since 1971, when we went off the gold standard and we went to a fiat monetary system, we have always done that, you know, and you know, the Fed put. And you know, that’s that. That’s the way it is.
TUCKER CARLSON: And it’s kind of worked for 55 years, but it’s showing signs of.
RAY DALIO: Well, what it does is it’s like using the hair of the dog that bit you.
TUCKER CARLSON: Oh, it’s the hangover cure. Yeah, I’m familiar with that.
RAY DALIO: Okay, me too.
TUCKER CARLSON: For sure.
The Debt Cycle: Hair of the Dog
RAY DALIO: It’s what you do is you give more money in credit and what happens is to get out of it and because then you make it easier to pay the debt you make. Like in 2008 or 2020, you give the money, okay. And you give the credit and you fund it and you make that. But that makes the debts go up again. Okay. Until then, you reach the point where the debt is squeezing on the expenditures and you have the supply demand. So that’s why you have these big debt cycles.
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So I think even people who are not really interested in monetary policy or macroeconomics feel like there is a point at which this doesn’t work anymore. It just breaks.
RAY DALIO: It is. It’s happened all in all.
TUCKER CARLSON: So what does that look like specifically, the debt crisis? People keep talking.
How Countries Go Broke: 35 Case Studies
RAY DALIO: Well, I. Because of that. My last book, my most recent book, put out about a little less than a year ago, is called “How Countries Go Broke.” Yes, the big cycle. And what I wanted to do is to just show 35 cases of it. That is just the mechanics to show how it works. Okay.
But it is that dynamic of the squeezing on the spending and the supply demand. And then you start to see it where, as I was saying, the long rate goes up while the short rate comes down because the central bank’s pushing the short rate down. And then they shorten the maturities of the debt. And then the central bank buys that and then the central bank, now it’s owns all these treasuries and then the central bank starts losing money because they own the treasuries and they’re going up.
So they have to produce the money and credit to keep that rate down and they lose more and more money. And that dynamic then doesn’t stop the change in the capital flows. That’s why you. And then traditionally in all of these cases, you see a move to the hard money, the move to gold, okay. As we’re seeing, you see that dynamic in terms of that move to gold. And. And then it starts to run its course.
So it’s very much like, think about what happened from 71 through the 70s, produces more stagflation. And then at some point the inflation problem or the devaluation of money problem becomes such that the central bank then tightens money, right? And so on. And the Volcker years, The Volcker years, 1979, 80, 81, 82, right. So the pendulum swings.
Think about it this way. In order to have a balance, a successful economy, a successful capital market, since one man’s debts are another man’s assets, you have to keep interest rates not so high that they crush the debtor without having them so low that they are bad for the creditor.
TUCKER CARLSON: Right.
RAY DALIO: So you see these cycles when we had zero interest rates and negative real interest rates, what you saw was massive creation of credit and money and borrowing and so on. And then you had that cycle. So that’s what the cycle looks like if you have losses.
And then you also have, under those circumstances, classically the weakening of the central bank’s control, or I should say the strengthening of the central government’s control over the central bank. In other words, when these things happen, then there is, they can’t be at odds. Okay. And so there is greater control by the central government of this and.
TUCKER CARLSON: Are you writing the news?
RAY DALIO: No, I’ve just seen this movie before.
TUCKER CARLSON: This is exactly what’s happening.
RAY DALIO: I know, but that’s what I’m saying because it must happen in that, in the nature of that dynamic when you have, imagine the fight between the central bank and the central government in the middle of a crisis and so on. So there is this control because there’s a monetary, because there has to be, right?
What happens if you’re the President of the United States or you are the leader in that country and you are in this kind of a monetary crisis? It’s like anything, any fight, you don’t want the internal fight, you want to get control and there’s a fight for control. So we’re living in a world today in which there are fights for control. Right. Who has the power and the fights for control.
TUCKER CARLSON: So again though, at what point do we know the system is just broken and this experiment which began post war 1945 is like reached its end?
RAY DALIO: And we need something pretty much almost only in retrospect. What happens if you’re really close up and you say when did they know that there was a breakdown? Or when did they know that there was, let’s say the French Revolution. There’s a day that they say Storm.
TUCKER CARLSON: Of the Bastille, right?
RAY DALIO: And there’s that day. And they said it. They didn’t know that.
TUCKER CARLSON: No, they didn’t. Just like some prison got raided or something. They didn’t. Yeah, no, that’s right.
RAY DALIO: Okay, so it’s not like they announce it or it becomes clear cut, right? You slip into those things. There’s never that clear moment.
The Future of Reserve Currencies
TUCKER CARLSON: What happens next? Like we heard Chairman Xi three days ago say, hey, by the way, China should hold the world’s reserve currency. And that seems very far away now, I guess, but maybe.
RAY DALIO: So you’re asking me what I think about China’s having…
TUCKER CARLSON: Well, I just, the only reason point, I have no idea if that’s possible.
RAY DALIO: I can respond.
TUCKER CARLSON: Tell me.
RAY DALIO: Yeah, Okay. I don’t think China is going to have a. There are two purposes of a currency.
TUCKER CARLSON: Yes.
RAY DALIO: Medium of exchange and store hold of wealth.
TUCKER CARLSON: Right.
RAY DALIO: Okay. Medium of exchange. It’s logical that China is going to have much more of a medium of exchange type of reserve currency because it is right now the world’s largest trading country.
TUCKER CARLSON: Right.
RAY DALIO: And so people, central banks want to hold some reserves in the things that they’re trading in and so on. And so the Chinese have intentionally, in order to minimize that conflict, have not pushed that thing and now they’re going to operate and moving in that way.
As far as store hold of wealth though, who’s going to trust the Chinese with your wealth and capital controls and so on? I think that all fiat currencies have a problem. Okay. So they have the history of foreign exchange control. They have. Would you trust it’s anti wealth protection? You know, this is not, that’s not their great track record of nothing. I’m going to protect your wealth. You even private property.
And how it works in China is a new concept relatively. And it’s something that they’re wrestling about. They don’t, you can’t own land, you know, you can’t own property. So the store hold of wealth element is going to be very tough for them to sell.
So the world does not have what you want as a currency, as a reserve currency other than gold. I mean it’s just a default, right, because it’s a debt and gold is the, you know, like they say, it’s the one asset you can have that’s not somebody else’s liability, meaning you have to get money from somebody else to do.
Gold as a Hedge
TUCKER CARLSON: So I asked you last year off camera, I’ll never forget it. I’ve always been a gold buyer, but then I don’t know anything. I just, it just instinctively seemed like it made sense. But I’ve always been a little bit embarrassed about it. And so I asked you, is it crazy to you know, take some money and buy some gold? And you said it’s not crazy at all. And I remember feeling vindicated, but also wondering like, why don’t more people say that? It almost feels like there was a conspiracy in the financial all around, not.
RAY DALIO: Not only and not only in related to gold, but all of the things I think people get used to. What’s credible to them is what they experience and the norm that they have at that time. And so much that’s happening, I hear people say I’m shocked by. But the only reason they’re shocked is because they’ve become used to that. Right.
If you were traveling through time and you went and before 1971 and so on, and you saw history and you saw the universality of money and gold and how the whole system worked repeatedly over time, you would understand there’s that dynamic that’s taking place. But yes, people think, they misunderstand. They think it’s a metal to speculate on.
TUCKER CARLSON: Right.
RAY DALIO: They don’t realize that actually it’s a money, okay. Central banks, second largest money. Okay. So when you’re, it’s almost like when you look at the world through that money, you can see what things cost through that lens.
TUCKER CARLSON: Exactly.
RAY DALIO: People are looking at it instead like through a dollar lens and they see gold go up. Okay, but that’s. You could look at the world through a gold lens and see money go down. Okay?
So all I’m saying is because of their experience of what it is, it’s implausible. It’s like you know, the tooth fairy or Santa Claus, you know, you believe in these things and so on, and then you realize through the cycle, and that’s why surprises take place, that’s why it seems implausible. But if you read history, it’s almost, you know, it’s logical.
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Portfolio Construction and Gold
TUCKER CARLSON: So you don’t seem surprised at all by anything that’s happened or is happening right now. What are a few other things you would not be surprised to see in the near future? For example, let’s start with gold. What would you not be surprised to see? The spot price of gold per ounce in like five years.
RAY DALIO: I don’t want to. You know, that’s one of those headline presuming. Let me say it this way.
TUCKER CARLSON: Yes.
RAY DALIO: I think people pay too much attention to the spot price of whether is the spot going to go up or down or whatever. And what they don’t do is think if I didn’t have any view on gold, what amount should I have in my portfolio?
In other words, if you did a portfolio construction exercise, right, and you said what is an effective diversified portfolio and what assets should I have and what amounts in that? Because gold is a very effective diversifier and also a protector of this during very bad times. Gold does very well when the rest of your portfolio does poorly because let’s say the 70s being a good example or the 30s being a good example.
During those times, it’s a diversifier. Okay. So the optimal amount to have for an individual or a central bank might be different, but an individual would be, depending on what’s in their portfolio, between 5 and 15% of a portfolio.
And so what I would say is if you approach that question that way and you think what should I have? You should have what we talked about before when my, a year ago, I guess. And so what you should have that particular amount somewhere in that neighborhood depending on what your portfolio is like.
And because it’s an effective diversifier and it is a money, okay. When the traditional money does badly, this money does well. When the traditional money, which gives you an interest rate that it’s the reverse. So that’s the thing that I would try to convey to people, you know, okay, do you have some of that? What’s the amount? That’s your comfort level, you know, but have some.
Fixing the Budget Deficit
TUCKER CARLSON: So what if you were running the United States or a country like the United States in its current position, what would you need to do to protect your country in the midst of these changes, some of which are inevitable, some of which maybe aren’t. Like, what are the steps specifically that you would take to help your country?
RAY DALIO: I would be dealing with achieve something like a 3% budget deficit, not more than a 3% budget deficit. I would try to get financial. I tried to minimize or eliminate, but minimize the risks of that dynamic I was talking about.
TUCKER CARLSON: So you would get the budget deficit to three.
RAY DALIO: Yes, but, and I would say to every, I’ve said to legislators, I go down to Washington and you know, leaders of both parties and I said it’s like being on a ship and everybody on the ship is headed to a rock and everybody knows that if you have a deficit of 6 or 7% of GDP, you’re going to have a supply demand problem.
And I have the conversations and by and large this is the agreement and I don’t care whether you turn left or you turn right in terms of that, but do not hit the rock. And what I would do is I would take a 3% pledge. In other words, say I will get it down there.
And if I can’t agree on how I would do it proportionately with three things I would proportionately with taxes, spending. In other words, if you raised taxes by 4%, if you cut spending by 4% and you lowered, which would lower interest rates because it improved the supply demand and it would also convey the message that it’s being dealt with, you would also lower the interest rate on the debt and those two things would begin to get it to approach about a 3% budget deficit and so on.
But doing that would require would be politically impossible. So I have these conversations and the answer is, you know, like Ray, you don’t understand the world of politics. If I’m there, I have to give at least one of two pledges. The pledges, and probably both the pledges is I won’t raise your taxes and I won’t cut your benefits. Okay? Taxes, you know, so there’s a big move here primarily to try to grow your way out of it.
In other words, again, you know, stimulate fiscal and monetary stimulation and hope that that produces perhaps with the new technologies and so on. That’s the idea. Enough income growth and so on so that this moves toward that 3% which is in my opinion a not likely occurrence.
The Technology Miracle
TUCKER CARLSON: Why is it’s not likely that technology will turn out to be so beneficial and lucrative that it.
RAY DALIO: The artificial and technology miracle is a great miracle, okay? I mean very, very beneficial. And I’ve gone through studied great miracles. The invention of electricity. I mean, wow, imagine where we’d be without that. But if you, anyway, I could describe what the 20s would like and 2000s and like and so on.
The ability to convert that to enough of a productivity miracle is not I think probable in the, also the time frame that we’re dealing with. So this is an issue. The debt is. And that dynamic remains an issue.
And then of course, what there is is the dynamic of how that prosperity and productivity is shared. In other words, it creates a great wealth gap. You know, you’re seeing this, we’ll talk about wealth. I’m going to come back and talk about wealth. But you’re seeing great increases in wealth on some populations. You know, wow, trillionaire. Okay.
TUCKER CARLSON: Yeah.
The Difference Between Wealth and Money
RAY DALIO: And that kind of thing. And then there’s 60% of Americans have below a sixth grade reading level. So that you take that sixth grade and okay, now how are you going to. You still have to deal with the nature of that dynamic of how it comes.
So the question is, what is the amount of productivity converted into income? How does the government get that income to deal with its debt so the holders of the debt get an effective real return and don’t have the problems? How does that happen, you know, in a politically acceptable way? There are lots of things that make that, you know, very, very difficult.
I want to say something about wealth and wealth taxes, which is, I think, worth understanding. There’s a big difference between wealth and money. And I want to just highlight it. Okay. Wealth is very easy to create because it’s almost accounting. What I mean by that is I could put out a raise $50 million, or individuals can raise $50 million at a billion dollar valuation and they will call that that person’s a billionaire and that there’s a billion dollars more wealth. Okay. It’s not literally that you have to have those transactions and wealth is not worth very much unless you convert it to money.
In other words, you have all of that wealth, but you can’t spend wealth.
TUCKER CARLSON: You can’t pay for dinner with it. Right, right.
RAY DALIO: You have to sell it, sell some of it in order to get money in order to pay it. And so when wealth rises a lot relative to money, you have a risky situation. Okay. Now the other thing about why is.
TUCKER CARLSON: That a risky situation?
RAY DALIO: Because when there’s a movement, the bubbles pop.
TUCKER CARLSON: Right.
RAY DALIO: When there’s a movement that I need to get money now, that quite often is I need to get money because it’s a debt service payment, you know? Right. In other words, let’s say quite often people borrow to buy wealth. Okay? So there’s a lot of borrowing now not only in buying stock, but companies themselves buying to create wealth.
And when you need to get the money, like in all the stock market bubbles, there was a lot of borrowing to buy the wealth. Well, when the need for money came along, they had to sell some of that wealth to get the money. And then that produces a dynamic.
Well, you don’t tax wealth, okay? So because you don’t tax wealth, and then there is this political issue of wealth. Are you going to tax wealth? What is going to happen in California? What is going to happen elsewhere in terms of taxing wealth? If you tax wealth, then imagine what happens. You have to sell wealth to pay taxes. Okay? So there’s a dynamic understanding and that.
TUCKER CARLSON: Lowers the value of it. Right.
RAY DALIO: And that’s what pops bubbles.
TUCKER CARLSON: Right.
RAY DALIO: So this, the wealth issue is a political issue. The wealth gap issue is a political issue and it’s a market issue and it’s important issue to understand.
The Inevitability of Wealth Taxes
TUCKER CARLSON: Is it inevitable that you would see, given the way our wealth is allocated across 350 million people, that you would get the rise of wealth taxes? Couldn’t this have been predicted?
RAY DALIO: It seems like it’s such an obvious headline, seemingly logical thing to do. Right. In other words, everybody would say, wait a second, all these people are having all the wealth and they’re not paying any taxes on their wealth while this is going on. Okay. We need to go where the money is. Right?
TUCKER CARLSON: Right.
RAY DALIO: So we, so it seems like that without then, you know, the full understanding of those things and how to do it in a, you know, managed way. But so it’s anyway, it’s upon us, certainly.
TUCKER CARLSON: And what will happen, I mean, that’s, I think, a referendum in California. So.
RAY DALIO: Well, I think what’s happening is. And we’re seeing it around the world in many different ways. People are people in California moving and it’s not the it happening, it’s the fear of it happening.
TUCKER CARLSON: Right, right.
RAY DALIO: So you’re, you know, you’re seeing that dynamic. I’m just, you know, like I’m a mechanic.
TUCKER CARLSON: Of course, I get it. You’re not judging other way, you’re just describing what’s happening. But because that is happening and people are moving and not just within the country, but outside the country. Do you have any guesses as. Or observations about where people are moving? So clearly in the country it’s Texas, Florida, but Wyoming, but in the world, where are people moving?
Migration Patterns and Tax Base Erosion
RAY DALIO: Generally speaking, they’re moving to where there’s civility and opportunity and there’s not much fighting there. You know, they want to be in places that have a. They go to places that have lower taxation, but also vibrancy. You know, they go Texas and Florida, as you say, and here in the Middle East or in, you know, a place that are also vibrant and things are happening.
And so you could see the patterns of those kinds of movements. And then the problems that that creates is a hollowing out in those places, the other places, because when they leave, the tax base is, you know, roughly speaking, you know, the top 10% pays about 80% of 76% or something of the taxes. And so when you lose, let’s say half of them, you lose a big amount of tax revenue, and then that becomes a, you know, a dynamic.
TUCKER CARLSON: So could you see, given all the factors you’ve described, like democracy, representative democracy continuing in a country like ours?
RAY DALIO: I, I, you know, I just, I hope so.
TUCKER CARLSON: Oh, me too.
RAY DALIO: I’m not, of course. And I just don’t know. I think, I think we, I think deep in us, we want, most Americans really, really want that and so on. And then at the same time, there are unreconcilable, irreconcilable differences.
And I think it was a recent poll, something like 25% of the population said that they would fight violently for their side. I mean, some significant percentage. Yes. And so, and it only takes a relatively small amount, so I don’t think we can take it for granted. In other words, there’s a lot we can’t take for granted, and I think we want to cherish those things, put those things above everything else. But you can’t take it for granted.
The Reality of Civil War
TUCKER CARLSON: When you hear people speaking lightly of civil war, which they are, what’s your reaction?
RAY DALIO: I have a principle. If you worry, you don’t have to worry. And if you don’t worry, you need to worry. Because if you worry, pro worry. If you worry, then you’re more inclined to prevent the thing that you’re worried about. So I think that the greater worry about some of these things is a good thing, you know? Yes. In other words, okay, now we won’t take it for granted. We worry about these things. So what are we going to do about it?
TUCKER CARLSON: I see people not worrying and sort of blithely throwing it out. Like, almost like the way they talk about some foreign policy operations is go in and, you know, kill these guys, put these guys in. It’ll be fine. That same attitude. I hear a lot about the United States, like, well, we’re going to have to fight it out at some point. You’ve taken a close look at civil wars throughout history. What are they like?
RAY DALIO: Well, civil wars and international wars are so horrendous that every, the most bold people who were, you know, trumpets blaring and going into that and so on, everyone came out of it with deep regret. I mean, we can see, while we see it on the news and you can see that, but just imagine how horrendous the wars are.
So I think it’s a cycle. You know, your confidence and your boldness is increased by the distance that you have to your last wars. You know.
Who Controls the Money?
TUCKER CARLSON: What is the difference? You were saying earlier, there’s a difference between money and wealth. And wealth, you said, is not necessarily easily convertible to money. In a society like ours, where is the money? Who has the money? Is it the same people who have the wealth?
RAY DALIO: No, no, no, no, no. Many people have a lot of wealth and don’t have much money. They have illiquid assets.
TUCKER CARLSON: Yes.
RAY DALIO: Okay. Money is the, is that what you can transact currency, short term deposits that you can assuredly and quickly turn into money? You know, that’s what money is. Yes. And the central bank really controls the money. And then you could look at who has that increasingly like you could look at M0M1 and you could see money market accounts and you could see those very liquid, you know, money, safe money, treasury bills, those kinds of things. And so that, you know, it’s. But ultimately it’s the central bank because they control the supply, demand.
TUCKER CARLSON: So I mean, if in a period of volatility it would seem like the central bank would clamp down on the money supply circulating among people.
RAY DALIO: Well, it faces the trade off, Right. The trade off is like in, let’s say COVID, right. Or 1971, when there’s too many claims and so on there. The trade off is that people need money and they may need money to pay debt and they may need money for whatever reasons. And so they are tempted therefore to create money.
And so you see the coordination between fiscal policy and monetary policy. So you saw two big waves of large budget deficits and large supports of central banks. First under Trump when the COVID began, and then under Biden when they got in. And because he also wanted more universal basic income. In both of those cases, the government sent out lots of checks.
And that’s also a popular thing to do. Discipline. Financial discipline is not what the population typically likes. Send out those checks, but where does the money come from? And then the central bank cooperates by buying the government bonds and print money and then buying those bonds. So it’s when they’re in the middle. Austerity is not an easy thing to have. Right.
Digital Currency and Government Control
TUCKER CARLSON: What happens if the government issues digital currency. What does that mean?
RAY DALIO: Well, digital currency is. Right. You’re talking about central bank digital currencies.
TUCKER CARLSON: Yeah.
RAY DALIO: Okay. And that there’s a great deal of appeal because of the fact that it’s easy and so on, but it’s. And I think it’ll be done. A lot happens.
TUCKER CARLSON: You think it will be done?
RAY DALIO: Yeah, I think it’s. And. But what happens in the digital currency, of course, it’s easy to transact and so on, almost. And it’ll be like money market funds. I think the question will be first, will they be able to offer interest? So there’s a debate now as to whether they will be interest. If they’re not able to offer interest. And there will be a debate, probably they won’t be, but then they’re not an effective vehicle to hold it in because you’ll have the depreciation. You’d rather hold it in a money market fund or a bond. But that’s debate.
There will be no privacy. And it’s a very effective controlling mechanism by the government. What I mean is all the transactions will be known. All transactions done with digital currencies will be known, which is good for illegal activities, getting control of legal activities. But it also means that the government has a great deal of control.
For example, they can tax. That way, they can take your money, they can establish foreign exchange controls and the like. So that’s something that will be an increasing issue, particularly for international holders of that currency, because they might feel, let’s say if you’re a Frenchman and they wanted to have sanctions, they could take your money, of course, you know, and so on. So there’s the privacy issue of that. So.
TUCKER CARLSON: And if you’re politically disfavored, you could be shut off.
RAY DALIO: Politically disfavored, you could be shut off. Yes. So those kinds of issues enter into it. For those reasons, I don’t. And they’re very tiny. I don’t think that you’re going to see the development of central bank digital currencies to be of a magnitude that it’s going to be, you know, that big of a deal. I think that doesn’t mean it won’t grow, but I don’t think it’s going to be a big deal. So.
Advice for Americans
TUCKER CARLSON: So my last question is, given your description of the United States as in stage five, in a process that.
RAY DALIO: Only which doesn’t mean it’s inevitable, of course.
TUCKER CARLSON: But there are only six stages in the process you described. So it’s toward the terminus.
RAY DALIO: It’s the time that it’s time to worry.
TUCKER CARLSON: So you go to Washington, you try to convince policymakers, members of Congress, people, administration. Here’s what you need to do. You’ve described the reception you get is like, hey, you don’t understand politics. We can’t do that. So that’s not a lot of headway made, obviously, for obvious reasons. Do you have advice for people watching who are not policymakers, who are just Americans, as to what they can do to prepare for whatever comes next?
RAY DALIO: Well, you know, there’s the basics. Earn more than you spend, try to save, diversify your portfolio, including about money. And those things are of paramount importance.
Think about the country, the opportunities. Where are the opportunities? People have migrated from one place to another. Follow the opportunities.
And most importantly is raise your children well, so that they’re well educated and able to be productive and also civil so that they can be effective.
And as I say, there are only three things a country needs to do, and that’s the same for the individuals. You know, raise your kids well so that they’re well educated and can earn an income and operate, go to places that work well so that there’s civility and productivity and there’s opportunity and stay out of civil wars and international wars.
TUCKER CARLSON: Those seem pretty obvious.
RAY DALIO: You do those things well. I mean, really, almost everything else takes care of itself. Really.
TUCKER CARLSON: Yeah. Ray Dalio, thank you very much for that.
RAY DALIO: It’s always a pleasure.
TUCKER CARLSON: Thank you.
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