John B. Hurford Memorial Lecture With Ray Dalio

Tuesday, March 1, 2022
Brendan McDermid/REUTERS

Founder, Co-chairman, and Co-chief Investment Officer, Bridgewater Associates, LP; Author, The Changing World Order: Why Nations Succeed and Fail; CFR Member


Host, Fareed Zakaria GPS, CNN; Member, Board of Directors, Council on Foreign Relations

Investor and author Ray Dalio discusses the changing world order, including the international economic environment’s trajectory, the economic and security implications of the current global geopolitical tensions, and lessons from analogous historical periods.

The John B. Hurford Memorial Lecture was inaugurated in 2002 in memory of CFR member John B. Hurford, and features individuals who represent critical new thinking in international affairs and foreign policy.

ZAKARIA: Welcome, everyone. This is a very special session of the Council, a very special Memorial Lecture. But it is particularly special because of the guest we have. Henry Kissinger once said that those who need no introduction crave one the most. I do not think that is true of our—of our guest today. Ray Dalio is a legend in the financial industry and beyond. He has built the largest hedge fund in the world, one of staggering size and complexity, and has managed to maintain an extraordinary operation through all kinds of financial turmoil.

But beyond that, what has always impressed me about Ray Dalio is he is a big thinker. He’s somebody who thinks about not just the day to day, which he has to be aware of, but about the decade to decade, the century to century, and one might even say sometimes the millennia to millennia and try to identify patterns and things that—ways in which history can inform the present. At the end of the day, investing is about pattern recognition. And what Ray has managed to do is be one of the world’s great pattern recognizers.

The book he’s written that I hope he’ll draw on the insights for this for this conversation is really extraordinary. It goes back hundreds of years, very detailed, extraordinary amount of research, great graphs. And what I wanted to do first is ask you, Ray, if you can explain why you wrote this, because it’s—in a way, you reached into history to try to understand something you saw in the present. So tell us what you were looking at in the present, and then tell us what you found in history.

DALIO: OK. I learned lot of times the many of the things that surprised me hadn’t happened before in my lifetime, but happened many more—many times in history. Like studying the Great Depression helped me understand and anticipate the 2008 financial crisis. And so three big things are happening today that happen—didn’t happen in our lifetimes in the same way.

The first is the amount of debt that is created and the amount of creations of money and purchases by central banks. We call that monetizing. And that has a mechanical effect of affecting all asset prices, liquidity, and so on. And it affects the value of money, the amount of inflation, and so on.

The second is the amount of internal conflict that we’re having—populism of the left and populism of the right and seeming irreconcilable differences—because the amounts of wealth gaps and the amounts of political gaps are the highest since the 1930s. Political gaps, you have to go back to 1900 to measure these things. So all of these are measured, because I need to measure them.

And the third is the rising of a great power to challenging the existing great power and the existing world order, which began in 1949 known as the American world order because we won World War II and we were the richest and most powerful. And power is not just military power. The total power of a country is economic, technology, and so on. So we have never encountered in our lifetimes the rise of a comparable power to challenge.

When those three things happen together, that’s very powerful. And it brought me to the need to understand the rises and declines of reserve currencies and their empires. And in order to see that cycle, I needed to go back five hundred years really to understand what’s happening today, because politics interacts with finances. And so any bet you’re going to have to make in the world is going to be tied to those things.

ZAKARIA: So that—I mean, there’s a lot to unpack there. And I just want to take the most vivid of those things, because it’s kind of happening in front of our eyes, which is a challenge to the established great power, the United States. Now right now what we’re seeing is Russia challenging it. But I suspect would you say it’s all part of a challenge to the order that was created by the United States? But tell us a little bit why, for you, China is the big long-term competitor and challenger. I’m guessing that you like a lot of us look at Russia and say, yeah, there’s a lot of trouble it can cause. But I mean, I think the Russian economy is about the size of the Belgian economy. Spell out why China is the one that at the end of the day is the most important.

DALIO: Well, I looked at eight different measures of power, and I put them together to create a power index that went back five hundred years and to watch it, and then I took eighteen measures. And so they’re just objective. If you were to look at any of those measures, it’s a comparable power. Since I started going to China in 1984, per capita income has increased by twenty-six times. The population of China is more than four times the size of the United States. So if per capita income became half the United States, it would be twice the size economically. The more money you have, the richer you are, the more power you have to buy military or whatever it is. And so it’s very apparent that it’s become a comparable power, and that it is growing at a faster rate. And it is likely to be a bigger power than the United States. So it’s just reflected in the numbers and the realities.

ZAKARIA: Let me ask you about one piece about China’s power that I want to try to understand. Because you can see in this Russia situation, one piece of power that the United States has that is really, in some ways, very new, and in other ways very old, which is the weaponization of finance, the United States using the dollar as a way to really exact extraordinary costs. So the Russians thought they had built a kind of sanctions-proof economy, $600 billion in foreign exchange reserves. And the arrow that pierces through it, of course, is at the end of the day, these reserves, a lot of them are in dollar- or euro-denominated, and the dollar is now 59 percent of all foreign exchange reserves, 90 percent of all financial transactions, international financial transactions. The Chinese cannot compete on that—in that realm because they want a controlled financial system. They want a controlled, closed system, which they can, you know, dominate, which they can tell their state-owned banks to do whatever they want. Can they—in a scenario where they don’t float the renminbi, can China really pose an alternative to this one very key weapon and symbol of American power?

DALIO: The greatest remaining power that the United States has is the reserve currency, which gives us—I mean, you print the world’s money, and you could borrow also because those save in it. And then simultaneously, it is at risk because we’re printing a lot of money. We’re creating a lot of debt. And so if you look at the cycles, that becomes an issue.

The issue, in terms of the internationalization of the renminbi, China has intentionally not internationalized the renminbi to—because it’s actually a big threat. They account for the largest percentage of world trade, larger than the United States. And you’re exactly right, because that is our greatest power—our greatest power is sanctions, the ability to have those economic sanctions, that has also become a risk, which has also prompted them, been a factor behind the creation of their digital currency, the e-CNY as it’s called—in other words, the digital renminbi.

 And so we are at an interesting moment, because as the sanctions are now imposed on Russia, an interesting question is to what extent will that be used to minimize the effects. One of the aspects of this issue is that traditionally, throughout empires, there’s the great leading empire and then there are alliances that are formed by opposing empires. And there’s certainly a very strong cooperation between Russia and China. And so it’ll be very interesting—one of the most interesting things—to see how that issue of being cut off by the world financial system leads to China or doesn’t lead to China operating in a way that reduces that problem. So problems lead to adaptations, and adaptations cause the issue to swing the other way. So the dollar has its own set of issues. And there is the building of alternative currencies along those lines, which means that it’s competitiveness. I think the biggest issue is we can’t take the dollar’s reserve currency status for granted.

ZAKARIA: What do you think of the argument that, OK, it may not come from the renminbi—but you alluded to it—you could—the world of blockchain and the kind of trust that is created, as well as the speed and efficiency created by blockchain is what will ultimately erode the dollar’s dominance. Maybe Bitcoin, maybe some other crypto but basically the idea of blockchain?

DALIO: We’ve entered—we’ve entered an era now where there’s going to be a competition of alternative currencies in various forms. That may be digital currencies. It could be different things. It could be gold. It can be other ways. But basically, there are two purposes of a currency: a medium of exchange, and a store hold of wealth. And if a country’s currency does not retain its store hold of wealth, if it’s not good that way, it’s in—a threat.

Right now, because the interest rates relative to the inflation rates are so low, it is not a good store hold of wealth. and psychology is shifting, because we’re in the part of the cycle when a lot of money has been handed out and credit is readily available, and that’s produced a sense of wealth, but it’s producing inflation. And so now—and investors who think that deposits—you know, money is safe in cash, or money is safe in bonds—are beginning to realize that its buying power that matters. And as they start to shift out of those, because, let’s say last year’s inflation, 7 percent, let’s say you have 5 percent, you’re losing almost 5 percent a year in buying power—that causes then or can cause the selling of those assets. And if you sell that currency, that debt, not only do does the government have to sell an amount of new debt equal to the deficit, but the amount of new debt that’s being also offered creates a lot of a need for money to service that debt and the printing of money. So that cycle that’s underway undermines the store hold of wealth. Very few people would consider deposits or bonds a good store hold of wealth when they have negative real interest rates.

So now we look at all currencies. Is it a digital renminbi? Is it NFT’s? Is it gold? What is it? Money, in other words, that serves the point of a store hold of wealth, but also can be moved around and go from place to place?

The other element of wars are interesting in history. You know, what assets do you hold in a war? Even allies would not hold each other’s debt and would not hold each other’s bonds because they know wars are expensive. And they don’t even know who’s going to be the winner of the war. So history has driven it to gold. And so there is the move. We will see that type of competition of currencies emerge, and we’ll see what ends up being best. Where you can print and create a lot of them, there’s a risk of the value of them.

So let’s talk about that. Now we get to your—in a sense, the larger two of your internal crises, the debt and the inequality. So on debt, I wanted to ask you how you think about this, this argument. In a way, it’s an argument that’s been made by a few economists, which is, you know, maybe we don’t fully understand debt, particularly debt for a country like the United States with an infinite time horizon. Because one of the things we always thought about debt was, in the end of the day, the creditors have power, because, you know, that’s why we worried about the Chinese selling our bonds and things like that. That’s why we thought the Russians with $600 billion of reserves have power.

But what quantitative easing has shown is that the debtor can just, if you have an independent central bank and you’re respected, you can just flood the zone, you can buy—you know, you could just—the Fed—let’s say the Chinese were to sell a bunch of American Treasury bonds. The Fed would just buy them. They would just print money and buy them. Why is it that—has that possibly even change this dynamic? And it’s a new phenomenon in history. Could it be that this is a pattern that won’t recur and that actually the debtor has power in this situation?

DALIO: It’s so—it’s so interesting, I think it’s chapter three of the book, which is called The Value of Money. And it goes back—I mean, literally, you can go back to Rome, and you can go back to the same thing for long periods of time. It comes down really to the value of money. And so it’s—when we think can you do it, if you’re earning—think about money now, you won’t—a bond. In order—you’re going to make a payment for a bond. When do you—it’s going to take you fifty years to get back the amount of money that you gave, more than fifty years to give the amount of buying power that you gave, in—measured in dollars. If you measure it in inflation-adjusted dollars, you will never get back the amount of money there. It’s become ridiculous. If that’s it—if you’re holding cash, you will never get it back and it’ll depreciate and so on.

So history has shown that people react to that. That’s why you’re seeing now prices of everything, basically—prices of real estate, prices of stocks, prices of everything going up in that way. And then you see adaptations to that, which means the selling, and then puts the central bank in the position of either having to have interest rates go up a lot to shut it down, or the printing of money. So this has been there are not many timeless and universal rules that are as strong as this. It’s covered 750 currencies and went—gone through and they’ve all, you know, encountered this kind of a pattern. This is not new. This is—common sense is going to say, OK, Fareed, are you going to hold those bonds? Or what are you going to do with it and what happens when you sell it and others sell it? Because it comes down to those kinds of basics.

ZAKARIA: So historically, as you say, in that chapter, chapter three, there are really only a few options. Basically, you can—you can write off the debt; you know, you can ask the creditors to take a haircut. And that goes back to the Jewish kings, the word jubilee, I was interested to know comes from, you know, basically the writing off of debt that the Jewish kings in the—you know, the time of the Old Testament required, or you can inflate it away, or there’s like a massive war that just like destroys the whole system. What’s going to happen?

DALIO: Well, in all of the times, they mostly print the money because no one—

ZAKARIA: So you inflate it away.

DALIO: You inflate it away. Because think about this. Everybody got a lot of money, and they didn’t take any money away from anybody. So nobody asked where’d the money come from, OK? So no problems. When they take it away with taxes or they do a restructuring, there’s always somebody to blame. It’s the subtle depreciation of that. So when you’re seeing this depreciation, it’s writing down the debt. It makes it easier to deal with the debt. So history has shown that all currencies in existence have either been destroyed or devalued.


DALIO: And when you have a fiat monetary system—you know, two times I learned about this. August 15th, I was clerking on the floor of the—1971, I was clerking on the floor of the New York Stock Exchange. And President Nixon gets on, and he explains that the United States will no longer honor its promise to allow paper dollars to be turned in for gold. And I thought that this is a big crisis. Wow, money as we know has ceased to exist. I went on the floor of the New York Stock Exchange and expected, you know, a pandemonium of crisis. And there was a pandemonium, but the stock market went up a lot, and I was surprised.

And so I studied history. I had never been through a devaluation before. And I found that the exact same thing happened on March 5th, 1933, Roosevelt. It was on the radio rather than the television. He made the exact same announcement because money was hard, and hard money they wouldn’t have. And they—and so he severed the connection. You wouldn’t get the gold. They’ll print a lot of money, and everything went up. And so through history—I studied this repeatedly—the same thing has happened through history. It’s a timeless and universal truth.

ZAKARIA: But is it sustainable? What worries you? We’re—so we’re doing that now, what you’re describing. Could there be as a result a kind of soft landing, which is a slow depreciation or, you know, inflation, whichever way you look at it that—but either side of the coin, which is kind of a manageable way out of this big debt load?

DALIO: When you have so much debt that is also somebody’s stored wealth, either the debtor or the creditor is going to pay. And it becomes very, very difficult to balance those two things for central banks. That’s why a lot—that’s the challenge of having a lot of debt which is a lot of financial assets, because that balancing act becomes difficult. So I think that right now, we have a problem in that a high enough interest rate to adequately control inflation, or provide an adequate return to inflation, is too high of an interest rate for the capital markets and for the economy. So I believe that we’re entering a period, which it’s going to be very, very difficult for the Fed and for other central banks to try to find that right balance. They’re going to navigate between those two things. Too tight means a bad economy, and too loose means a bad inflation. And I think that difference is going to produce more of a stagflation type of environment.

This is particularly true internationally, because internationally, a lot of the world is holding bonds because it’s a reserve currency. If you want to save in a bond, if you want to save in dollars, because you use it so much, you buy it, and you save in it, and you buy the bonds. But they’re overweighted in dollars. So it’s not certain. But it is a big, big risk that I think everybody’s too casual about.

ZAKARIA: And it feels like you’re describing a balancing act that is the one you described for the Fed, that’s kind of hard to pull off.

DALIO: It’s going to be very tough to pull off in that balance, particularly in a political environment. Remember, all three of these things are going on at the same time. So we have an economy, we have a political environment in which everybody needs more money, everybody needs more money. And also, when you have a military threat, you need to spend more money on defense, or military expenditures. It’s a guns and butter type policy. I remember when there was guns and butter in the Vietnam War, and so on. So you have where is all that money going to come from so everybody’s going to be happy? So it’s a challenge.

ZAKARIA: So explain the political division, the inequality. How does this play into it? You just—you touched on it. Is your—I mean, you don’t often hear multi billionaires worrying as much about inequality as you do.

DALIO: Well, I was—I lived the American dream. I was—you know, my dad was a jazz musician. My mother was a stay-at-home mom. I went to a public school. I lived the American dream. I believe in the American dream. I believe equal opportunity draws the greatest number of people and it also makes the most stable society. And I think that’s obvious. And so when I look at this, and you read history, you see that when you have large wealth and opportunity gaps at the same time as you have financial problems, you have the sort of environment that we’re having now, which causes populism of the left and populism of the right that we’re seeing now. A populist is not a person who’s going to compromise. They will—they’re a fighters for you, and they will win at all costs. And so history has shown that there becomes greater and greater polarity—populism of each side—and less compromise. So if you look at all the civil—you know, the French Revolution, the Russian Revolution, the Chinese Revolution, the Cuban Revolution, so many others—go back to even in Europe and the world in the 1930s—those large wealth gaps caused conflicts, and those caused fights. Four major countries in the 1930s chose to go from parliamentary democratic systems to autocratic systems, because you lose the middle. You always lose the middle.

I think we’re losing the middle. I think that if you take a look at, let’s say today, the idea of a compromise or even in the primary elections, you’re seeing in both parties that the more extremists are dealing with the moderates, and a lot of moderates are choosing not to run for re-election, because the only winners are going to be the fighters. So you could see a situation in which there are irreconcilable differences in the form of not accepting losing, for example. And that’s not unimaginable. We’ve seen signs of that. Or the idea of like a sanctuary city, the federal government makes an order and the local governments don’t. And you’re seeing this polarity take place geographically, not just because of taxes but because of differences in values, and so on. So you’re seeing that kind of behavior. If you read the histories, and you study that arc, you see that readily. So it’s not—it’s something we can see. And it’s a repeating of the history in that way. So that’s what it looks like to me. It’s risky.

ZAKARIA: So what it sounds like, you know, all of this suggests a very gloomy forecast, which is the triple crisis, very difficult to navigate your way through. In the past, when these things have happened, the leading power has declined or even collapsed. And I want you to give us a sense of your bottom line, because when I think about all the forces you’re describing, you’re absolutely right. You can’t argue with them. But it’s also true that the United States is, you know, unlike Britain at the end of World War Two, which was 4 percent of global GDP, the U.S. has 24 percent of global GDP. It has the dollar as the unrivaled currency of the world. Probably unrivaled. No currency has ever been this powerful. It has—all the leading technology companies in the world are American right now. If you look at the future of technology, whether it’s—you know, I mean, look at the vaccine. For all that everyone says, which is the vaccine that that has conquered the world? It’s not the Chinese vaccine. It’s not the Russian vaccine. It’s the Western and largely American mRNA technology. So when I look at all that, what I’m trying to understand is, you know, what is the—what are the prospects for the United States in the in the world you’re describing, given the challenges but given the considerable strengths that the United States still maintains?

DALIO: I did eighteen measures. I wanted to look at everything objectively. And there are different kinds of strengths: strength in education, strength in so many different things. And they’re shown there. And the United States is still the most powerful country in the world. And it has really unique advantages. For example, talent, immigrants, the ability to bring the smartest people in from all over the world to come here. And it’s the only place in the world where you can be a citizen, really, and be a part of the—and intellectual property protections and rule of law, and so on. There are unique competitive advantages that exist.

I think really the question is how we are with each other and then going back to those fundamentals. Per capita income is higher than it ever was in total. Science is better. Everything is better than it ever was. It’s all how we are, and it really comes down to those kind of three basics. Can I earn more than I spend? OK, so if you’re productive and you’re well-educated and you earn more than you spend, and you have a balance sheet and good—then you’re financially healthy. Can we be good with each other? If we’re good with each other, common and agree and be productive together, we can do this.

And that’s also true internationally. Can we be good with each other? Can we—are we going to destroy each other? Or are we going to have healthy competitions? We call them wars, but there are competitions. There are five types of competitions throughout history, and you see it happen over and over again. There’s a trade war, a technology war, a capital war, a geopolitical war, and could be a military war. Now, each one of those if they’re competitions that are healthy competitions, and we don’t do each other damage, why shouldn’t we have the best living standards and a broad-based prosperity? It’s all with us. I have, you know, a principle. If you worry, you don’t have to worry. And if you don’t worry, you need to worry. So that’s because if you worry—I hope I’m injecting worry. Because if we have worry, then we will not do the things that are going to be damaging and we will do the things together and productively. And if we don’t have worry, then I’m really worried.

ZAKARIA: Alright, on that sort of optimistic, sort of pessimistic note, I’m going to open it up to questions. I think that the way I do this is I alert the Council that we would like questions and they are going to now open it up to the floor. If you can get us the first question, that’d be great.

OPERATOR: (Gives queuing instructions.)

We’ll take our first question from Dee Smith.

Q: Thank you very much, gentlemen, for this fascinating discussion. I’m Dee Smith. I’m CEO of Strategic Insight Group and advisory board chair of the Institute of Latin American Studies at University of Texas at Austin.

I was very interested in your three key points. And I wondered if where—because I would think of adding a fourth, which would be the telecommunications and connectivity revolution that we have seen in the last twenty, twenty-five years, which reminds me of two previous ones, the invention of the printing press leading to the rise of the Protestant Reformation and the hundred—more than hundred years of war ending with the Thirty Years’ War and the Treaty of Westphalia, which completely rethought international relations; and the rise of television and radio, which in some ways ties to the rise of the conflicts in the early part of the last century. And I wondered if where you see that, the rise of, you know, social media, the internet, the extremely rapid and the extremely high-volume kind of information that we all have to deal with now and that seems to have a destabilizing effect on society in several different ways.

DALIO: Thank you for that great question. When I started with those three forces and I look back and then I found out two other forces that were giant, even more important than those, first, acts of nature. I found that pandemics, droughts, and floods, caused more deaths and disrupted and overturned more societies than the things we mentioned before.

And the fifth was man’s creativity and the changes of technologies that are associated with it. It almost looked like over the cycles, the cycles would keep repeating. But what we would get was, it’s almost like just the clothes and the technologies people were using would change, but the per capita income, life expectancy, all of those evolved to higher standards. And it’s certainly the case that what you’re talking about, we’ve gone from the human body, and it’s gone higher and higher. And now we’re replacing, in a sense, a lot of thinking. Artificial intelligence and so on is a very, very powerful thing. But like in all technologies, you know, it’s a risky and fabulous thing. If I’m dealing with artificial intelligence—I’ll start with that one—it’s fabulously powerful. But it is also, in many ways dangerous, because machine learning comes from forming algorithms based on how things have happened in the past. And when the future is different than the past and there’s not an understanding of the cause and effect relationships, you can have consequences. And the connectivity that you’re talking about, the instantaneousness, this is something you see evolve over time. You know, three hundred years ago, in a day you can travel twenty-four, about twenty-five miles. Nowadays, you can travel to the other side of the world, and we’re connected like this. That connectivity is fabulous, but it’s also very risky, and particularly in a cyber-connected world in which there is now the greater—the great cyber risks of hacking. This what used to be available for nation states in terms of that is available broadly based to a lot of entities. And we have that sort of connectivity. So, again, I think it very much depends on how we are handling these things.

ZAKARIA: Can we get another question?

OPERATOR: I’ll take our next question from Andrew Gundlach.

Q: Thanks for taking the question. This is Andrew Gundlach, president and co-CEO of Bleichroeder.

I’d like to go, Ray, to your comments about stagflation, and I’d like to get your views, please, on the inflation both in the United States, and interestingly in China, too. Specifically, do you believe it’s cyclical? Or is it more structural in the sense that CEOs have rediscovered their pricing power? Of course, they’re not going to tell us that in a public sphere. They’ll blame it on everything else, supply chains, etc. But is it more structural resulting from lower globalization? And how do you think it gets solved? Thank you.

DALIO: I think the structural you’re referring to is like supply chain problems, and so on. And while that exists and there’s an element of inefficiency, no, it’s—there are two types of inflation, which are when a demand presses up against capacity, you have low unemployment, and you try to hire people and that kind of inflation. And we certainly have that. We have shortages of capacity, shortage of labor, and so on. And then there’s monetary inflation. Basically, the price of anything is equal to the total amount spent on it, divided by the quantity of goods sold, so when you’re putting out a lot more money and producing money, it makes it less valuable and so on.

I think that—and there’s a cycle. The cycle is when we go from an environment in which we—the psychology and the behaviors have not been inflationary to one in which it starts to be inflationary. I talked about the—what it means for an investor. Right now, most investors are transitioning, beginning to transition, of thinking that if they have good money in cash it’s safe, to something in which they say I don’t want to own those things because they’re not going to give me an adequate return, and so you see that. But you see it also in jobs, employment. So you begin a cycle that is self-reinforcing. I think that that’s taken place.

And then there are other structural elements that are a part of that. For example, it is correct that there are supply chain issues and the need to build—like in China and the United States to build independent systems for securities and so on, so resources are going into building that kind of thing. But also, in addition, the green revolution is very expensive because there has to be enough progress in a short enough period of time, in terms of inventing new technologies or replacing carbon emissions, you know, and dirty fuels with clean fuels, and so on, but it hasn’t yet—those a lot have not yet been developed, and so a lot of money has to go into the developing those. And also, the rationing makes oil prices—for example, there’s not capital formation, as much capital formation in oil prices—go high because of that and that produces more inflation.

So there are those kinds of structural changes—the amount of money, the supply/demand of money—and then the changes that are taking place that are the greater cost. We do an attribution to find out what it is and it’s mostly those two bigger influences being the quantity of money and credit that’s available. You can practically get interest-only loans, so you don’t have to pay any interest because interests are virtually nothing; the interest rates are low. And you can borrow money almost on an interest-only so you don’t have to pay any principal, and so on. So money is—pretty much almost free and so that’s why houses go up and everything goes up, and then you have this other component of the swing with the capacity constraint. So it looks to me like that’s what inflation looks like, and it’s not going to be controlled—you know, it’s not just, like, going to go back to the way it was.

ZAKARIA: But just to be clear, are you saying—are we in for an era of persistently high inflation?

DALIO: Yes, I believe so. Yes.

ZAKARIA: Next question.

OPERATOR: We’ll take our next question from Fred Hochberg.

Q: How are you, Fareed?

Thank you, Mr. Dalio. How do we get voters to care about this? You know, I don’t think—it’s hard to imagine how we get voters, as we’ve discussed, whether it’s caring about the dollar being the reserve currency or these changes, it seems really hard to get this into voters’ heads that they will actually start changing our politics. Do you have any suggestions on that?

DALIO: Well, that’s a problem. I think that’s a problem of our system. I think we need a move to bipartisanship. I think fear of the alternatives might be a good thing, but bipartisan—you know, I think if you were—I dream of this. If you were a president of the United States, if I was president of the United States, I’d have a bipartisan Cabinet. I’d draw moderates from both sides and I would work in a bipartisan way to make—to not only increase the size of the pie but divide a pie well and to work for that and try to minimize the extremes which are going to have that type of conflict. I don’t know if—some means of us being good with each other, and I think the only thing that can bring that about is fear of the alternative. So, you know, it’s that worry thing. You know, is this accurate? Is this real? And if it is real, do you worry about it, and then what should you do? Can we work across party lines and also between the rich and the poor to create a system in which there’s greater productivity so the pie grows and it’s also divided well.

ZAKARIA: Let’s hear from—I will just point out you should identify yourself and your institution. That last question was Fred Hochberg, the former head of the Ex-Im Bank.

Can we move to the next person?

OPERATOR: We’ll take our next question from Joan Rohlfing.

Joan, you can go ahead.

Seems we’re having some technical difficulties. We’ll move on and take our next question from Tyler Godoff.

Q: Thank you very much, Ray, Fareed. Thanks for the conversation here. Tyler Godoff, general partner at Emerging Founder.

So, Ray, last time we were together I asked you for your definition of integrity. You said it is the absence of duality. Is it wishful thinking we can create an environment where our top leaders meet the standard of high integrity? And if not, what are some tweaks we can make to society to facilitate the rise of more high-integrity leaders? Thank you.

DALIO: You ask if it’s likely. I don’t think so. Right now to get elected you have to be very extreme, and it’s not the classic absence of duality. You know, being the same on the outside as on the inside and understanding what good character is and how to work together—these are not qualities that are now broadly appreciated because there is instead populism, which means fight for me and I do not want to hear the other side. So it’s reflected in the media; it’s reflected everywhere. So I don’t think it’s likely. I think our society would do well to have more heroes. We don’t have any heroes. We don’t convey that in any way. There’s so much tearing down, but there are so many admirable people who do those types of things. But, you know, it’s a sign of the times, so I can’t tell you how to get integrity or thoughtful disagreement. The idea of being curious when another party disagrees, to see their perspective and to know how to work through disagreement well to get at the best answer, these are not now valued.

So I don’t know how to change that. Through evolution, what’s happened is they come about through, you know, the conflicts. Traditionally, it’s like war; what one generation—our generation has not experienced war, any serious war, and so we don’t have the horrors of war, and if you go through history, when they go through a war, they never want a war again, even those who most wanted a war. And so these psychological cycles take place. I don’t have the answer to that question about how to bring integrity and the good character and the thoughtful disagreement. I don’t know that I have the answers to that question.

ZAKARIA: All right. Let’s get another perspective or a question.

OPERATOR: We’ll take our next question from Barbara Matthews.

Q: Hello. Thank you very much. I’m Barbara Mathews. I’m the founder and CEO of BCMstrategy, Inc. I’ve also had the honor of serving as the first Treasury attaché to the European Union, so I appreciate both your comments and your book from multiple angles. But given my current role, I wanted to focus on your comments about the American dream and technology advances.

The situation in Ukraine is completely inescapable and I know we in the West and we in the United States like to believe that our technological advantage creates the possibility for more pluralistic and open society. But it is theoretically possible that it could not. And I would be grateful for your sense of the opportunity that technology provides to us in the current situation and specifically the opportunity to make better data-driven decisions with better information.

DALIO: Well, two things come to mind. Technology has been a wonderful force of narrowing wealth gaps between countries. It’s also been a force—so within countries wealth gaps have increased and between countries they’ve sort of narrowed, and education can happen through technology, employment can happen through technology, and so on, but of course it also can replace people. So I think the issue is, how do you do smart technologies? You know, it’s a two-edge sword.

As regards your question pertaining to the Ukraine, I’m not sure that I understand that—your question correctly as it pertains to the Ukraine. Could you clarify that?

Q: Happily. I apologize for being a little obtuse. The power of technology to disseminate information also has in the recent years provided the opportunity to disseminate powerful disinformation.


Q: And I was not clear enough and I apologize for that, but it is—and we have seen that already in the last week and it’s profoundly challenging. I’m in the data business. I struggle with the search for, you know, ground truth and we’re not involved at all in the situation, but as just an observer, you, I know, and your firm—you know, you are very technologically savvy and you are very thoughtful and it’s a difficult situation because one—being in a position of identifying who is the right speaker and who is the not right speaker is very difficult on occasion.

DALIO: It becomes a really difficult question because we lost truth. We don’t know what is true anymore. And the question is, how is that dealt with? We don’t want it dealt with by the government because that becomes propaganda and the control of people through the media and so on, and then it’s like the question of, who controls the data? In the United States, the last ones you would give it to or we would agree to give it to is the government, and so it’s a question of whether the individual controls the data and the individual or the company controls the data and who controls the information. And it’s one of the great problems that our system of great freedom also has the other side of that that you don’t know what’s truth and you don’t know if it’s healthy. And then on the other side, you have, you know, the control by the government.

So I don’t have answers to that question. I think you’re hitting on, of course, a major problem and it’s carried through in media. You know, where is truth? And social media. Even the damaging effects on the brain that a lot of social media has and has been proven to have is a consideration. These are difficult questions. I can’t answer them. I know they’re real, though.

ZAKARIA: All right, let’s get another one.

OPERATOR: We’ll take our next question from Amy Jaffe.

Q: Yes. Amy Jaffe with the Fletcher School in Tufts University.

Ray, a question for you. We’ve had this whole conversation. You’ve kind of talked about people turning their gold or assets but doesn’t affect gold, but when you start investing in assets like real estate and other things, then you have to be concerned that you may be possibly ignoring what climate change is going to mean for those assets. So you haven’t mentioned climate change so I thought I’d throw that into the mix because it seems a very large issue.

DALIO: Thank you, yes. As I was saying, the acts of nature have had more of an impact than anything, and so I think of climate change as going to most likely produce more disruptive acts of nature and there’s a relationship not only between climate but there’s also in disease and pandemics and so on, and yes, that worries me. And we’re just in the stage of how is that productively and economically dealt with? For example, our society doesn’t include the costs of that in our calculations. And the time is very short in terms of creating those technological changes in the economics of that.

So the first four of these—I say there are five. There’s the financial, there’s the how we are with each other internally, there’s how we are with each other externally, there’s the acts of nature, and then there’s technology. And the first four of those I think are concerning, the directions of those; climate change is certainly concerning in terms of that environment. The bright spot, if it’s dealt with, is the inventiveness of man and the development of technologies—like Fareed said, the capacity to come up with the vaccine so quickly and those kinds of inventiveness. So if technology is used well, there’s always been the way of getting around it. I remember—I’m old enough to remember the Club of Rome when the world was running out of food and resources and the population was growing and there was a gathering in Rome about what to do with that and there were two thoughts: one is that we, you know, we’re going to have a catastrophic result; the other thought, which was really the minority view, is that man’s capacity to adapt and invent, we find solutions. So, you know, I hope that that becomes the case, although we are certainly running out of time and this is not a sure thing. So yes, climate change is going to be material, even where you grow crops. And the costs—anyway, you know about that; I won’t reiterate all the costs that are going to come as a result of climate change.

ZAKARIA: All right. I think that’s a good place to end, partly—(laughs)—because we are running out of time and the Council on Foreign Relations has a long tradition of ending its meetings on time. But I thought that it captured exactly the spirit of this kind of, you know, really extraordinary piece of work, which is to identify all the key features that we confront, all the key vulnerabilities, the key crises, and, as you said, Ray, to worry about them a lot so that they don’t turn out to be—at least, in their worst manifestations, they don’t turn out to be true because we have acted to stop or ameliorate or to deal with some of those challenges. So it’s a very bold book in that way and that I think it’s fair to say you want to be wrong at some level; you’re writing the book because you want to be wrong, because you want us to take actions to prevent the scenarios that you’re outlining. So I wanted you to just—a minute on that thought and then we’ll close.

DALIO: We have the capacity to do this. It’s just a test of us. That’s it. I think that’s honestly it.

And I want to thank you, Fareed, for bringing this out and thank those who have come, and I hope, in one way or another, that you’ll contribute to making it better.

ZAKARIA: Ray Dalio, pleasure to have you.

Thank you all for coming; it’s a huge number of people for a virtual Council meeting, and it’s a testament, Ray, I think to the thoughtfulness with which you’ve put this all together and, of course, the legend that precedes you.

Thank you all. Thank you very much.


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