Endgame with Gita Wirjawan - Ray Dalio - Economic Empires: Past, Present & Future

Episode Date: October 19, 2023

Delve into the contemporary global challenges in finance, security, and climate change as analyzed by Ray Dalio, a seasoned authority in the field. In this 60-minute conversation, the Founder and CIO Mentor of Bridgewater Associates provides an in-depth perspective on how individuals, professionals, nations should respond to these polycrisis. Moreover, he elucidates the pivotal role of updating the capitalist system in disentangling these multifaceted issues. A collaboration with Ubud Writers & Readers Festival 2023. #Endgame #GitaWirjawan #RayDalio ----------------------- Start your investment journey with Pluang and insert promo code RAYDALIO upon registration to get a bonus of Rp25.000 US Stocks, click here to get started: https://pluang.onelink.me/jTjO/znova8kq (T&C applied, read further here: https://bit.ly/pluangraydalio) If you are a Pluang user, you can get a bonus of Rp50.000 Crypto assets in the form of Bitcoin. Enter promo code PLUANG50RB on the mission page, click here to get started: https://pluang.onelink.me/jTjO/w9cst0xi (T&C applied, read further here: http://get.pluang.com/bonus-bitcoin-50ribu-tnc) ----------------------- Get Ray’s best “Principles” books: "Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail" (2021) "Principles: Life and Work" (2017) ----------------------- About Luminary: Ray is a global macro investor for more than 50 years, major philanthropist, and best-selling author. He founded Bridgewater Associates out of his two-bedroom apartment in NYC and ran it for most of its 47 years, building it into the largest hedge fund in the world and the fifth most important private company in the US according to Fortune Magazine. His investment innovations (e.g., risk parity, alpha overlay, and All Weather) changed the way global institutions approach investing, making his achievement in receiving TIME magazine’s "100 Most Influential People in the World." His famous books include “Principles: Life and Work” (2017), “Principles for Dealing with the Changing World Order” (2021), dan “Principles for Navigating Big Debt Crises” (2018). Ray founded Dalio Philanthropies with his wife, Barbara. The philanthropy deeply devoted to exploring the oceans and closing the education, financial, and healthcare opportunity gaps in the US. From inception to date, the Dalio family has given over $6 billion in funding to Dalio Philanthropies to support philanthropy. About the Host: Gita Wirjawan is an Indonesian entrepreneur, educator, and currently a visiting scholar at The Shorenstein Asia-Pacific Research Center (APARC), Stanford University. Gita is also just appointed as an Honorary Professor of Politics and International Relations in the School of Politics and International Relations, University of Nottingham, UK. ----------------------- Understand this episode better: https://sgpp.me/eps158notes ----------------------- SGPP Indonesia Master of Public Policy: [e-mail] https://admissions.sgpp.ac.id https://wa.me/628111522504 Other "Endgame" episode playlists: Daring Entrepreneurs Wandering Scientists The Take Visit and subscribe: SGPP Indonesia Visinema Pictures

It's in your interest to prioritize, to have a more austere, more secure capability. That will give you power and independence. Right. Always know what phase of your life you're in. And think about what the next 10 years will be like for you and for those you care more about. Would you be in a position to try to read? define capitalism? Yes.

Welcome to this year's special collaboration between Endgame and the Ubud Writers' and Readers Festival. The theme of this year's festival is past, present, and future. This year's guest is American investor and author of Principles for Dealing with the Changing World Order, Ray Dalio. The aim of this discussion is to explore and reconcile the idealism versus the realism of the future world. Enjoy this episode.

Hi, Ray. Thank you so much for Gray saying our podcast. It's so good to be here. Thank you for having me. I know you've written so many successful books, and we in Southeast Asia are very keen on a number of things that you could shed wisdom upon all of us in Southeast Asia. But I want to explore a little bit about what values that you were brought up with that made you, the, the, the, famous Ray Dalio that I think can can share a lot of wisdom to the rest of the world. Well, I was lucky to have two parents who loved me. My dad was a jazz musician. My mom was

sort of a stay-at-home mom. And I don't know why, but I got into doing work such as delivering newspapers and so on as a kid in earning the money. And then when I was 12, I was caddying and the stock market was hot. And so I got, I didn't know what I was doing, but I got involved in the stock market. I remember the first stock I bought, which was the only company that I ever heard of that was selling for less than $5 a share. And I figured, wealth, if it's less than $5 a year, I can buy more shares. So if it goes up, I'll make more money, which was a stupid idea. But what happened is I got lucky.

A company came along and acquired this company that was about to go bankrupt and it tripled. And I thought this game is easy. The game is not easy. But I got hooked on the game. That had an effect. But mostly, I would say, having good parents, my dad would. as a hardworking, you know, the classic, he went through the depression and the war. And it was a jazz musician and play, hardworking, but also creative, not a highly structured

guy. My mom loved me a lot. I didn't like school. That was a frustration for them. But anyway, that was kind of the background. I grew up in also an era of almost unbounded optimism. Kennedy was president. The United States wanted to go to the moon, eliminate poverty, all of those things, believing I could almost do anything. And I came out to a world of equal opportunity.

So I didn't like high school. I got into a college, that worked very well for me, but not a great college in classic measurements on probation. I loved college, did very well, went on to Harvard Business School, which I loved, and I was in that world of equal opportunity. So that's kind of the summary. You've talked a lot about those in your principal's book, but I'm just curious. as to whether or not you would have turned out the way you are if you had been born in a

different time in a different country. I mean, you're the true manifestation of the American dream, right? But would we be able to see the same Ray Dalio if Ray would have been born at a different time or in a different country? I think that if you look at immigrants, it depends on what I was like. Yeah. It depends how, in what ways it was different. But when I look at, when I look at immigrants and they're, how they get around their obstacles and they're not having much and they have to survive and find the way,

I think that that builds strengths. and that those strengths and aspirations in combination drive you to what your passions are. And I think I, when you ask that question, I think I would have had a greater chance of that than if I was born into a rich family. If I was born into a rich family in the United States, and I had lots of privileges,

I suspect I wouldn't have had the same drive. I was, you know, strive to make, you know, learned how to make money by working at an early age. If I didn't have those kinds of things, I think that would have caused me to be a bigger, a different type of person, a more different type of person than if I went to another country, Interesting. I want to talk about the current generation and compare that with your generation. You were born in the late 40s. You've talked a lot about how important it is to spend less than you make. We're sort of like living in an era where I think the current generation or the young generation is having a tough time and deferring gratification.

what sort of advice would you have for the current generation or the young generation? There's this notion that there's this high time preference. There's not a whole lot of sense for low time preference. They want to get this instant gratification today and not want to defer gratification until the future date. Well, I mean, I'm just going to tell you how reality works. Yeah. There are things that really, really matter. and there are things that don't matter a lot in your priorities.

If you keep indulging yourself to consume and don't build savings, you're spending on luxuries now in exchange for a great pain later. You have to be self-sufficient plus. I don't care whether that's at a high level of income and a high level of spending or a low level of income or a low level of spending. That's an individual choice of what kind of life they want to live. But if you're not earning more than you are spending, you will be dependent on others and you will be vulnerable and experience a terrible time when, when you can't get ahead of that money. But first, I mean, if you spend more than you earn

and you borrow money to do it, when you pay back, that's going to be bad. If you still, even if you spend more than you earn, because somebody gives it to you, you're going to be dependent on them giving it to you. The only way that you're going to get freedom and healthy is by earning more than you spend and building that. I used to calculate at first how many days, weeks, months, and years could I live if money

didn't come in. And I'd feel good. The only time I felt security is when I could live for an extended period of time. that gave me a sense of having both freedom and security. So don't waste it. Like I give my kids and my grandkids, sometimes gifts, but I give them a gold coin. As a gift, and then I'll give them some other little gift,

maybe a toy or something. And I told them you're never to spend that coin through your life unless there's a real emergency. And hopefully through your life, you'll never have a need for spending that coin, those coins that you're accumulating. And when you get an income, you put it in a gold coin. You buy another gold coin. And you give it to your children and you pass it along. and the day will come where you're going to have that. And what they're experiencing this, the children and the grandchildren,

is that they're developing a treasure. Most of the other stuff is junk. You know, they buy something. It's, you know, a year or two or whatever, it's gone. So I'm saying that it's in your interest. Right. To prioritize, to have a more austere, more secure capability, that will give you power and independence. How more difficult is it to get that sort of wisdom in a household, in a world where you've aptly pointed this out many times, in a world where values are diverging?

wealth is diverging at a bigger rate than we might have ever seen, you know, in the past in the last few decades. And how does social media affect the ability or the inability to share that sort of wisdom for you to save for the future? Well, there's a number of things that come to mind in response to your question. Everybody will learn through their experiences. When you learn through your mind and you're taught things, it's intellectual learning.

It's not going to say with you. You need visceral learning through your experiences. So we'll all learn through experiences. Then we have a problem in what do different people learn in their environments? And we're talking about that because, like I say, if I didn't have an environment that taught me the things I taught, like the need to work hard, all of that, I wouldn't have learned it. People, and so with large wealth gaps,

one of the real problems of the situation that has always been through all cycles of problem is that as one earns a lot of money or enough money, then they take care of their children in a privileged way and whatever. And the children may not have to aspire. And so you see that rich people sort of get unfair advantages and they are also not getting some of those strengths. And you see the poor people, I see this a lot. We work, my wife and I, particularly my wife, works in the poorest school districts in Connecticut where there's poverty and all sorts of terrible type of environments. And in that environment, they learn differently because there's drugs, there's crime,

there's gangs, there's a problem in the school systems of being educated well. We live in Greenwich, Connecticut. the average amount spent per student in the high school. There's a few years ago, so it's not up to date, but it was 24,000. In Bridgeport, Connecticut, which is a poor school district, right up the road, it's $14,000 a student. So there's less money being put into that school district. They need more because also basics like they don't have. computers. And when we had COVID, they're supposed to learn on computers, but 60,000 students

in Connecticut did not have computers because the families couldn't afford computers. They didn't have a part of their education system. And the society would not provide that. We bought those computers philanthropically to give them to that. And when you have environments in which that is the environment. Then you learn your community is your gangs, literally. Your income is dealing drugs. And, you know, your path is crime. That causes incarceration. That cause it. That's enormously expensive. In the state of Connecticut, it's like $700 million a year because of that type of cycle. And so they learn different things. That's just the mechanics of. what we're dealing with. And unless we somehow as a society recognize that broad-based,

you can't have a living standard below which people can't go. They deserve what I had, which is ideally two parents, at least one parent, in some cases they don't have that, but they need the support to get through a public school that's decent and come out to a land of equal opportunity. So the society must do that, or it will implode, it will collapse as homelessness, mental illness, drugs, and everything increasingly shift things as we're seeing take place now. And so, so yes, you're going, everyone will have the different experiences.

So somebody's got to rise above that. We'll have a war, an internal civil war, if we don't do that. And that's, you know, that's kind of where we are. And so if you see the cycles through history, that's what always happens. The capitalist gets, you know, there's capitalism and communism. Redistribute the wealth, keep the wealth. Unfair advantages. How do you do that in a way that is healthy for the most majority of,

other people so they have good experiences. That's the issue of our time. Special thanks to this episode sponsor, Bluang. Find out how you two can navigate big changes and open up a lane of opportunities for Indonesian society by clicking the link in the description below. Would you be in a position to try to redefine capitalism? Yes.

First of all, let's agree. that it has to work for the majority of people. Right. Most people. You know, it's got to work for 70% at least of the economy. I mean most. And let's establish the fact that there's a level below which we shouldn't let people go. And let's also establish that the society as a whole has to be productive.

That it's not just giving people money. So if you keep giving people money, that's not going to be good. We talked about that. You have to build a healthy education system and convert that into productivity. Productivity is a key word. The society's whole has to be productive to be able to then have the income. Because it's not just financial income. money just has no intrinsic value.

It's what you produce. It's got to produce. So you have to be productive as a whole. Almost everybody's got to aspire to be self-sufficient plus, and you have to help them get there in order to operate. So if we all agree on that, there are wonderful things that we can do to help that. Invest and aspire to equal quality edge.

or high. Don't lower the high levels to get equality, on whatever, aspire on how to raise the educational and security levels. You know, in many schools. Right now, there's, you have to go through a metal detector to make sure guns don't go into the schools. You have drugs. You have all of those things. you have to create an environment in which those children are raised well, have those basics, educated well, made them productive. We have found out my wife through her work for her mission is to get high school students in the worst neighborhoods who would have dropped out through high school and into jobs.

We find that that can be done for about four. $450 a student. Wow. And so if you do that, you realize that's cost effective. But it doesn't have to be our program. But in one way or another, we have to define it. We have to define capitalism as also having all in cost. What I mean all in cost is that there are costs.

to educating, to not educating a student having them drop out in, and crime and so on. Or there are costs in our environment. If somebody can pollute the environment and there's not a penalty for polluting the environment, but it's a cost of the society. In one way or another, for capitalism and the profit system to work, it has to be all in cost. But we also have to recognize that the profit system alone, it's a great way of allocating resources by and large, because it means that whatever you're producing is worth more than whatever it costs you to produce it. That's a good thing to have that.

But we also have to realize that it can divert resources from those things that we need most, like education. Like, for example, the Constitution in the United States makes education a state issue, not a federal issue. And then within each state, it's typically a tax district issue. So if you live in a rich community, you're probably going to get more money for education than not, and then your kids will be more privileged. Nothing wrong with educating those kids well. But in some way, you've got to make it work and engineer. And I see it in my philanthropy. I see it.

I mean, for example, okay, here it is. And COVID comes along. And the kids don't have computers. Okay, so there has to be on these basics an understanding that you need to invest in the people, and their productivities and there's intolerable

things that can't be done or not be done or done in a bad way and you can design that you can design that. The way to design that,

by the way, is not by any one person imposing what they want. We have a problem here of polarization and all different people have all different views of what they want

and now they have extreme views of what they want, and they fight and they don't resolve it. I think what we need as a country is bipartisanship of moderates who are intelligent and able to do the engineering. Like we should have a bipartisan president, I think. This is a dream, but there are things we can do.

who has a bipartisan cabinet, who brings together both sides there, moderates, who agree more with each other than agree with the extremists, and then who are smart enough, and they should have something like a Manhattan project or a constitutional convention in which there's something like a year, and you bring them from the moderate left and the moderate right, but who can work together and engineer a proper re-engineering,

reforming of capitalism, how it works mechanically. And you can get there. Everything needs to be reformed. Every machine, every computer, every thing, every society needs to be reformed. And we need to have, we need to reform the system. so that it achieves those goals of working well for most people and making them productive. And that can be done. Right.

I'm completely, I'm in complete agreement with you on the polarization. It's quite pervasive. It's not just in the U.S. It's all across the world. Right. And I'm totally with you in this idealism of creating some sort of a bipartisan framework of, of decision-making, right? But what I'm detecting beneath that

is that there is a concern with respect to the inability to find the right intersection between power and talent, irrespective of the ideology, whether it's an autocracy or democracy, right? I studied the 10 most powerful empires over the last 500 years

and the last three reserve currencies. It took me through the rise and decline of the Dutch Empire and the Gilder, the British Empire and the Pound, the rise and early decline in the United States Empire and the dollar, and the decline and rise of the Chinese Empire and its currencies, as well as the rise and decline of the Spanish, German, French, Indian, Japanese, Russian, and Ottoman empires,

along with their significant conflicts, as measured in this chart. To understand China's patterns better, I also studied the rise and fall of Chinese dynasties and their monies back to the year 600. Because looking at all these measures at once can be confusing,

I'll focus on the four most important ones, the Dutch, British, U.S., and Chinese. You'll quickly notice the pattern. Now let's simplify, the form a bit. As you can see, they transpired in overlapping cycles that lasted about 250 years, with 10 to 20-year transition periods between them. Typically, these transitions have been periods of great conflict because leading powers don't decline without a fight. So how am I measuring an empire's power? In this study, I used eight metrics. Each country's measure of total power,

is derived by averaging them together. They are education, inventiveness and technology development, competitiveness in global markets, economic output, share of world trade, military strength, the power of their financial center for capital markets, and the strength of their currency as a reserve currency. Because these powers are measurable, we can see how strong each country is now. was in the past, and whether they're rising or declining. By examining the sequences from many countries, we can see how a typical cycle transpires.

And because the wiggles can be confusing, we can simplify it a bit to focus on the pattern of cause-effect relationships that drive the rise and decline of a typical empire. As you can see, better education typically leads to increased innovation and technology development and with a lag the establishment of the currency as a reserve currency. You can also see that these forces then declined in a similar order reinforcing each other's decline. Let's now look at the typical sequence of events going on inside a country that produces these rises and declines.

In a nutshell, the big cycle typically begins after a major conflict, often a war, establishes the new leading power and the new world order. Because no one wants to challenge this power, a period of peace and prosperity typically follows. As people get used to this peace and prosperity, they increasingly bet on it continuing. They borrow money to do that, which eventually leads to a financial bubble. The empire's share of trade grows, and when most transactions are conducted in its currency, it becomes a reserve currency, which leads to even more more. At the same time, this increased prosperity distributes wealth unevenly, so the wealth gap

typically grows between the rich halves and the poor have-nots. Eventually, the financial bubble bursts, which leads to the printing of money and increased internal conflict between the rich and the poor, which leads to some form of revolution to redistribute wealth. This can happen peacefully or as a civil war. While the empire struggles with this internal conflict, its power diminishes relative to external rival powers on the rise. When a new rising power gets strong enough to compete with the dominant power that is having domestic breakdowns, external conflicts, most typically wars, take place. Out of these internal and external wars come new winners and losers.

Then the winners get together to create the new world order. And the cycle begins again. And so if we're realistic, we understand that dynamic and how that works, because that dynamic has happened repeatedly through history. So you have to get to the notion, okay, what does it matter most? Who is we? Who is in control? Can't be theoretical.

So I think that we, as a population, will go toward a form of financial crisis, civil war, and external war. if we don't have fear of that. 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, you will take care of what you're worrying about,

and chances of happening are reduced. And if you don't worry, you'll headlong into it. I think we're not worrying enough about these things, and only if we recognize that we, We have to pull together and that there's a strong middle. There needs to be a strong middle. And we pull together. And we're not so hung up on exactly how we do it just as long as let's agree on how to do it.

And work there that we can do it. And there's no other path. I sense that the world is not worried enough, right? And what would it take for anybody across the world to be more worried? in the context of the five forces that you've been talking about, right? The indebtedness, internal conflicts, external conflicts, climate change and technological change and all that. It just seems that nobody's worried enough about any of these. It's because we've never experienced it before in our lives.

And what's happening now is one of those things that comes along once every 75, 100 years kind of thing. and we only react to it. So we each go into our happy worlds. Think of our experience. You go into your neighborhood. We, you know, we, I don't know, go out to dinner, go to ball games. We, they watch their streaming this and whatever. And there's not the experience.

And it seems so, why worry about it? I mean, like everybody's talking about it, but I'm experiencing it. The only way we learn is through experiences and sometimes the pain that they produce. And so we haven't had this. It comes along once. The new world order began after the last great fight, the war. Right. Okay.

You have the full war. You have the pain of the war. You have the restructuring. You establish who the power is. Nobody wants war again. You take that generation, my parents' generation, who lived through depression and war, and they come out and they have learned. Okay?

They have learned to save. They have learned to, you know, not get into war. and that learning and that establishing who's in control sets the stage for the prosperity that comes, that then we produce these greater wealth gaps, senses unfair fairness, debt bubbles, and we do the same thing again. You have a debt bubble crisis and so on. So there's only if you can get them to intellectually worry, that's one of the things I'm trying to pass this thought along.

If you're worrying, you pass that along, but sometimes it's going to take experiences, and then it's going to take figuring out how to engineer it so that you get through it. So you have to have agreement by smart, reasonable people about what to do. That's just how reality works. You know, Bridgewater has done excellently over the past few decades. I would think, I would speculate that it's mainly because you've been the great chief worry officer or Bridgewater. Now, would it help? I mean, would you advise anybody out there, be it in a household, in a school, in an office, in any social institution,

as for them to have some sort of a chief worry officer so that the world will be better off going forward? I don't know. I think the world is worry and opportunity and then knowing how to go after the worry excuse me, go after the opportunity while

minimizing the downside and I learned how to do that through my experience as a painful experience. If you want, I could tell you about it, but anyway, through this painful experience of being painfully wrong. I learned humility,

and I wanted to find the smartest people who would disagree with me to stress test me and also for me to learn. And I also learned how diversification of my bets could reduce my risk by up to 80% without reducing my returns. So I think people have got to learn those things.

They have to learn how they can have great upside with opportunity while eliminating, virtually eliminating the unacceptable downside.

So there's an you have to learn that through experiences and so on. I think experience is the best teacher. My dad learned it because he went through depression in war. He didn't earn much money. He was a jazz musician. He raised me. I went to grade school. He had everything that he needed. We had everything we needed. A nice house, not a mansion, of course, but a nice house. Food. I went to public school. We had car, everything that he needed. And when he died, and he was 91,

he had over a million dollars saved up when and that's a while ago so that's a few million dollars and he had a great life and he learned it because you can do that you have to you know give up overindulgence let's call it and and and you do that um so in each in our own ways we can learn it through perhaps through experiment of course we want to do it intellectually but so i don't know that, you know, like the real question is, is the person in charge like that? You know, the chief worry officer, it's good. Yeah, companies have risk officers. It's a good thing. Surface those risks. And also know that it's only the one, you know, one in 20 years or one in 30 years that'll kill you. Like all companies die. Well, when I decided that I was going to run

Bridgewater, I did certain things to make sure that it couldn't die because it can contract because, but we would not go broke. And so, yes, that worrying is good. I don't know about, but you have to have it in your bones and in the leadership while you're also excited about the opportunities. Because look at, I mean, Bridgewater was amazing. Two-bedroom apartment, 1,500 people. We made more money for clients than any, um, hedge fund ever in existence. They made money. We made money.

We have a community. It's built around meaningful work and meaningful relationships. It was great. But there is a way of doing that balancing, and you have to know it and want it through experiences, I think. Yeah, you've done really well, man. I mean, you've made money in, what, 28 out of the last 30 years or something like that?

It's awesome. Yeah, because I don't want to. lose money. And we've made great money. Yeah, we made more money for their investors than any other. So, yeah. You're one of the earliest observers of China. You've done business there.

You've interacted with so many personalities out there. I want to talk about the current U.S.-China relations. And I want to put this in the context of what you've alluded to. to, you know, a few times in the context of the 100, you know, year storm in the horizon. Talk about that. Yeah, I've been very lucky. 1984, I was invited over by Siddick, which was called a window company. It was the only company that was allowed to deal with the outside world.

1978, Deng Xiaoping came to power and he wanted to have open-door policy and great reforms. And I went there. And I went there for curiosity. They didn't have any money. They couldn't pay me anything advice. And I went there for curiosity. And I started to develop these wonderful relationships with these wonderful people about helping them develop their system, their, You know, their capitalism was so on for long.

And we've been long old friends over a long period of time. It was something like 12 or 15 years. I was there before I ever earned any money. And it was the satisfaction of that relationship. So and I'm and that's continued to today. I studied the dynasties. And I've had the experiences. Since I started going China's per capita income.

has increased by 28 times, life expectancies increased by 10 years an average. A poverty rate went from 88% to less than 1%. An amazing, the greatest economic transformation of all time. And there's a great understanding of history. And that's why Shishi Ping says that there's a great storm on the horizon, and a one and a hundred year storm on the horizon. And that storm that we're facing, that we're facing, we're all facing it in the world.

In the United States, we're talking about it, the same cycle I talked about with combination of debt, wealth gaps, this, international conflict. Okay, that storm, there's a great storm on the horizon. And then there's the reactions of how do you deal with that great storm. There's internal conflict. There's external conflict.

So what's happening in China now is largely what always happens in such periods of great conflict. And they know it. They've seen it through their dynasties. That everybody must line up and be, and there's no room for fighting between ourselves. There's one side and everybody must line up and be on that side. And if there's any wavering, you know, okay, off with your head or something like you're not, you know, you have to deal with that. That's something, by the way, we're dealing with in the United States and democracies in their own ways in history. You have to look at history.

And when you go through those periods, even the most democratic countries, you could not be, you're not safe. a lot of things. You can't do anything. You have to follow, line up and follow. And so we're doing that while there is then these classic things we're fighting over. So, for example, in World War II, when we had the world depression, then the conflict, let's say in Japan, by way of example, it happened with Germany and Europe, Japan in Asia. There's this conflict, the geopolitical conflict, In the geopolitical conflict, the United States cuts off oil to China, to Japan, and also freeze their assets. And when they freeze their assets, and that leads to Pearl Harbor. The same dynamic is going on.

Chips are now oil. And so that's the dynamic. there's a fear in China and other countries that they might get sanctioned by the United States, meaning just like if you had dollar assets in Japan in the world or Russia, they make them worthless. That particular dynamic is sort of happening again. And so that's where we are. We have a number of issues that are irreconcilable differences. So we're at the red lines of a number of those issues.

I could touch on them briefly, but there's obviously the Taiwan issue. Go to the history of Taiwan. Okay, we're going to go back. There's what's called the 100 years of humiliation. The West end, China, lived in two largely different worlds that then came together when the foreign powers, particularly let the British come and into China. And they want to trade. And China says it has all its needs, it doesn't want to trade,

but they want to force themselves in. They create the opium wars. This is now starting in 1840. And they create the opium wars to sell opium to get that and whatever. And then they have military. conflict and different foreign powers take different parts of China. Japan takes Taiwan in 1895. Fast forward, you go to the end of World War II. Japan loses the war. The new powers win to find who gets what territories. China is given back Taiwan. And so,

everybody agrees, Taiwan is now reincorporated into China, but China has a civil war between, again, the left and the right, the communists and the capitalists. You have this war. The capitalists run to Taiwan. And so there's an argument of who controls Taiwan, but there's one China, and it's an internal civil war. 50 years later, or, excuse me, 50 years ago, Henry Kissinger goes and everybody agrees China's part of Taiwan. Okay, now we have the possibility, there's a question, supposed to be peacefully reunification over time.

It's 50 years later, and it would be considered a declaration of war if the United States said that Taiwan would be an independent country. That would be intolerable. But there's the pushing of the edge of that, which means that there's in favor of the defense of Taiwan. The United States will act in favor of the defense of Taiwan, send military equipment and so on. And so that's one example of something that is, you know, like right at the edge and is kind of an uncompromisable and difficult situation.

If you take a number of the issues, like if I take the issue of support for Russia and the war here, it's a big issue. If I take trips, if I take trade, if I take many things, we are at those lines, and therefore we have this great power conflict. Well, you know, in the seeming Thucidus trap between China and the U.S., what would be your views with respect to Southeast Asia, right? do you think this is more of a threat or an opportunity for Southeast Asia? Before I answer the Southeast Asia, I want to emphasize that that struggle, there will not be a winner or a loser in that struggle. But the ultimate winner, there's going to be that conflict, will all depend on how strong the country is internally. Got it. it will depend on financially how it's strong,

productivity, how it's strong, and how people deal with each other internally to be strong. So both of those countries are going to struggle with each other, but their main struggle is an internal strength struggle, and that will determine how the external, conflict goes. Right. And to answer your question,

it's an opportunity more than a risk. But I'll give you the history. Right. Neutral countries in wars, there's winners, there's losers, and there's neutral countries. Neutral countries do better than the winning countries in wars.

Because the winning countries get into debt, like the British won the war, but they were bankrupt. The United States made a lot of money because it entered the wars late. So all the gold that it accumulated, gold was money at the time. The United States accumulated 80% of the world's gold because it entered both World War I and World War II late. So neutral countries that don't get into war, the three big ingredients for a country are do you earn more than you spend? So you have a good income statement of balance sheet. Do you have an internal dynamic that is destructive or productive?

And are you in an international war? And so when I look at the emergence of countries in the ASEAN region, of the nature of how Indonesia, Vietnam, Philippines, other those countries, they're coming up to have higher rates of capital formation. they are operating in a way that's going to be more, more productive. They are, if they remain largely neutral and can avoid being in that war, and that they will do well. Singapore is emerging as a almost Switzerland kind of capital for that for various reasons. And so that is an area. of opportunity.

India also benefits from this because you also see that as companies don't want to be in China because of the nature of the whole war situation, not just military war, but let's say economic war and they're worried about that.

Then they go to countries, these other countries, and then they benefit. Capital goes, business opportunities, and so on. That's also, by the way, happening in the Gulf countries in the Middle East to some extent.

So it is, by and large, a benefit if those three ingredients remain in place, those three ingredients that are, you know, earn more than you spend, have a good income statement balance sheet, work well together. So don't, you know,

eliminate corruption, or minimize, it, create the capital formation, create opportunity. And then number three is don't get in the war. That's great advice. I'm going to push on this, Ray. In the context of the need to spend less than you make, the need to borrow less than you make,

the need to be more productive than you make, between China and the U.S., Who's likely to be more competitive in the next few decades in the context of all those? The United States has a very, very unstructured creativity that also with its capital markets and its adaptability is able to invent very quickly. it doesn't make a strategic plan. It doesn't have the, you know, it's very much a bottom up type of approach. That also does create the problems that we're talking about, about the large wealth and opportunity gaps and those types of things.

And when, you know, Plato, this dynamic, this question has gone back a long time. democracies exist at a long time. Plato wrote the Republic, and he made the point that there are cycles. And what happens is the greatest risk to a democracy is anarchy due to the internal fighting, creating the disruption and so on. So it has, the United States has those advantages and has that challenge about that internal fighting and how that works and gets through it. Then you go to China and it now is dealing in a much more autocratic, top-down, directed kind of way. That is that and so that will direct resources

in many cases to producing, like in a war economy, producing the things that are going to be needed. In other words, in many cases, how does a war economy work? You don't have a free market operating that economy as much as you, because the profit system, you know, people going and spending a lot of money on expensive handbags are not going to be productive in a war economy. It's just not going to work. So you have that sort of directed, but that directed is going to be less corrected, but it's going to be very focused. And you won't have people fighting each other in the same way as long as you keep that. And so you see that kind of an approach.

Those are the differences in the approach. Both of them have their vulnerabilities. and so as we go through that, I think it's one, one can't easily say one side's going to win over the other side, each as their vulnerabilities, each as, you know, their advantages. So I'm not going to pronounce it.

It's all a function of your circumstances. There comes a time where, you know, everybody lining up, doing what they're told, you know, go fight the war and all that is an advantage. And there are times where that kind of thing is a disadvantage because, you know, a top-down leadership and all decisions have got to go to a leader and everybody's feared, fearful, and they won't make, because they're fearful, they won't make decisions and that has problems. So it looks like that to me. I don't think we should worry about.

you know, like pronouncing a winner, we just have to know that there's going to be a conflict along those lines, as there always has been. Got it, got it. Ray, one of the five great forces you've alluded to earlier is climate change, right? And I've been alluding to the fact that, you know, the sustainability narrative resonates to only a small portion of the world population, whereas most of the world population is more concerned about putting food on a table, irrespective of how the energy is sourced, right? How do you, in your view, how do you think we could help reconcile these two seemingly

irreconcilable narratives, the narrative of development and the narrative of sustainability? I don't know that I have the answers for all the world's problems. So let me just describe what I think is the reality of what is going on. We have a situation where, as you point out, and one of the five great forces throughout history has been acts of nature. Droughts, floods, and pandemics have killed more people than wars, caused more government, caused more government. and geopolitical systems to collapse and so on. And it's a huge deal right now, however you deal with it. If you don't deal with it, it's a huge deal.

If you deal with it, it's a huge deal. It's going to be costly. There are three types of costs for that. There's the cost of going from, let's call it, brown energy to green energy, which is very costly. You have to invent the energy, you have to readap. And in that period of time, there's a gap of not investing in the brown energy.

And so there's a supply demand issue and it becomes costly. The second cost is the building of infrastructure to deal with climate change. literally, you know, in Indonesia. It's an issue of, you know, Jakarta and other. So you have to build infrastructure. How do you deal with the infrastructure? That's costly. And then there will certainly be damages.

Droughts, floods, all of those will have damages. And the estimated cost of these things, in one way or another, however you spend it, is in the vicinity of $10 trillion a year, depending on how you do it. Let's call it $5 to $10 trillion a year. World GDP is $100 trillion a year. So it's 5 to 10% of GDP is going to be this cost

that is going to come on top of the other costs. Okay, so, okay, let's first. that, let's digest that. How are we going to deal with that? Then, as you point out, there's the developed world and there's the emerging world, and the

emerging world has a larger population and is poor. And in many cases not efficient. In many countries which are corrupt and so on. So how do

you get resources or affect change, you know, in the underdeveloped world? First, where does the money come from? Where's the motivation come from? How do you get through the corruption and so on? Well, there are no easy answers to these things, right? Right. The only answer of all of this is when the greater good rises rises above the individual good as the priority. And then it becomes a common problem.

So how do you get the resources and so on? you know, during such times, the opposite is true. You know, I'm going to fight for me and we'll line up and we will fight for us. So I think it's going to be an intractable problem. Claudia, I'm going to be interviewing Ray Dalio next week. I know you're a big fan of his. Any question you want me to ask him? Yeah, wow. And I really like Ray Dalio. I'm a huge fan. Yeah, actually I do. I'm thinking, what would Ray Dalio tell my five-year-old daughter, if I had one, right?

About the next 10 to 20 years for life, what should you expect, what should you think about? I'll question that. Thank you, Pat. Thanks. Very excited for your time with Redaliou. Tell me how it is. I'll let you know. Thanks. What would Ray Dalio advice to a 10-year-old kid anywhere in the world in terms of he or she needs to push forward in the future?

I'm going to give you again the longer answer. There are three phases in life, I think. There's the phase, the first phase in life where you're dependent on. others, you're being raised, you're going to school, and at 10 years old, you haven't yet transpired into puberty, just prior to puberty, and you're learning in a unique way that changes actually, the mind, brain changes out of puberty in a way that you're having experiential learning, you haven't yet had the rebellion for your parents, and, you, you haven't yet had the rebellion for your parents and so on.

And so it's a wonderful, wonderful time for this experiential learning. By the way, almost every successful, really successful person I know at that, in that age, right around 10 or 12, they got hooked on something and they liked it. And so that's experienced. So at 10 or 12, have the experiences, follow your passions, and enjoy that. Then there's going to be a transition into where you're gaining independence, your own thought, but you're still dependent until you get out in life when you're out from under your parents. You graduate school.

You're on, now you're on your own. now you're not dependent on others. You have to make your decisions. You make your choices. You have a lot of free choices. And then you begin a new phase of your life where others become dependent on you. You try to become successful. You have your family.

You have your job. And you go through that dynamic. So at each level, at each age, I would give a different view for the 10-year-old. it's like, you know, go experience, imbue it. If you're learning a language, it's shown that prior to puberty, you will learn that language without an accent. At post-puberty, you're going to learn it with an accent. So to have that experience to play, to enjoy, and so on.

And I'd say, do that, do your experience. And then recognize, if you can, step back and say, I'm now going through the next phase and I'm on the next phase, always know what phase of your life you're in. And think about what the next 10 years will be like for you and for those you care more about. So like, for example, I'm 74 years old. I know where I am in my life. I know what the next 10 years will, where I'm likely to be, what that's going to be like and how I'll be different. in 10 years from now. If I look at the people I love, I know what that'll be like. And they'll be

younger or older. And if I think about, you know, the next generation, what will they be like? If you're raising children and you're in your middle of your life and you're raising children, imagine what they will go through over the next 10 years and where they're going to be. and if you can understand how life works, I mean, it's kind of like in most ways, the life arc is pretty similar. At certain ages,

you know, you get married, you have kids, things happen in a certain way. If you know what that life arc is like, you know, that would be a big thing. I would say one other thing

and advice I give to everybody. I would give it to the 10-year-old because the 10-year-old, it's the age, then it begins to be a thing, meditate. I've learned, I was very, very lucky in, you know, when I was in college years, 1969, to learn to meditate. The Beatles went to India.

They came back and I learned to meditate. Transcendental meditation helps to give you an equanimity. and a perspective to almost rise above yourself, to understand how reality works, it gives you a centeredness, and it gives you also a creativity, because you transcend into your subconscious where a lot of creativity motion is.

If you can meditate, it will help you see where you are in your life cycle. It'll help you understand and accept how reality works, and help you develop your principles for dealing with reality to be effective. That's a great and long advice for a 10-year-old. The final question, Ray, what makes Ray Dalio happy? I feel there's many things that bring me a lot of lots of joy. And I like evolving fast, learning fast,

and then contributing to evolution. So I want to evolve fast and I want to contribute to evolution. So evolving and contributing to evolution as is a general theme. However, I love, like the thing that makes me happiest now is probably my grandkids. I, you know, they're fabulous. So I have my passions, my intellectual passions. I have a compelling desire to pass along what I've learned and also my wealth of philanthropy and so on. So how do I pass it along well?

How do I learn well? And then how do I savor life? This is, I want to save her life. I love the philanthropy. I also have a passion for ocean exploration. I was a diver. I am a diver, active diver, and then I do ocean exploration. One of the excitements is I've created a foundation that supports ocean exploration with a great ship.

You can go online and see. It's called Ocean X. It's the initiative. It's going to go to Indonesia. And it's going to, Indonesia, by the way, has the greatest underwater biodiversity in the world. It's totally undiscovered. And I'm excited that we're going to work with the Indonesian government to make underwater discoveries so that they also can plan. And so that kind of, that's a great passion.

And when I get to see this underwater world, that's exciting. So those are my friends. My, you know, one of the advantages of being old is you've got a lot of old friends. You know, friends have been friends for a long, long time. So I very much enjoy my friends doing different things. Great. I like snowboarding. Oh, my gosh.

At 74, you're still snowboarding. That's pretty cool. Not the same way I did the past. Anyway, I know you got to go, Ray. Thank you so much for being on our show. Thank you. And I hope to catch up with you. I look forward to it.

Bye-bye. Ladies and gentlemen, that was the great Ray Dalio from Bridgewater. Thank you. This is Endgame.