Principles for Dealing with the Changing World Order: Ray Dalio (Transcript)

Full text of author Ray Dalio’s talk titled ‘Principles for Dealing with the Changing World Order’.

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TRANSCRIPT:

Ray Dalio – Author

The changing world order — the times ahead will be radically different from those that we’ve experienced in our lifetimes, though similar to many times before.

How do I know that? Because they always have been.

Over my roughly 50 years of global macroeconomic investing, I’ve learned the hard way that the most important events that surprised me did so, because they never happened in my lifetime.

These painful surprises led me to study the last 500 years of history for similar situations where I saw that they had indeed happened many times before, with the ups and the downs of the Dutch, British and U.S. empires. And every time they did, it was a sign of the changing world order.

This study taught me valuable lessons that I’m going to pass along to you here in a distilled form. You can find the comprehensive version in my book “Principles for Dealing With The Changing World Order”.

HOW I LEARNED TO ANTICIPATE THE FUTURE BY STUDYING THE PAST

Let me begin with a story that brought me to this point about how I learned to anticipate the future by studying the past.

In 1971, when I was a young clerk on the floor of the New York Stock Exchange, the United States ran out of money and defaulted on its debts. That’s right; the U.S. ran out of money. How?

Well, back then gold was the money used in transactions between countries. Paper money, like the dollar, was like checks in a checkbook in that it had no value other than it could be exchanged for gold, which was the real money.

At the time the United States was spending a lot more money than it was earning by writing a lot more of these paper money checks than it had gold in the bank to exchange for them. As people turned these checks into the bank for gold money, the amount of gold in the U.S. started to dwindle.

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It soon became obvious that the U.S. couldn’t keep its promises for all the existing paper money, so people holding dollars rushed to exchange them before the gold ran out.

Recognizing that the U.S. was going to run out of real money, on Sunday evening, August 15th, President Nixon went on television to tell the world that the U.S. was breaking its promise to let people exchange their dollars for gold. Of course, he didn’t say it that way; he said it more diplomatically without making it clear that the United States was defaulting.

(Video: [President Nixon] ‘Strength of a nation’s currency is based on the strength of that nation’s economy, and the American economy is by far the strongest in the world. Accordingly I have directed the Secretary of the Treasury to take the action necessary to defend the dollar against the speculators. I have directed Secretary Connally to suspend temporarily the convertibility of the dollar into gold or other reserve assets, except in amounts and conditions determined to be in the interest of monetary stability and in the best interest of the United States.’)

I watched in awe realizing that money as we understood it was ending. What a crisis? I expected the stock market to plunge the next day, so I got on the exchange floor early to prepare when the opening bell rang, pandemonium broke out, but not the kind I expected. The market was up… way up and went on to rise nearly 25%. That surprised me, because I never experienced a currency devaluation before.

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