Ray Dalio: Debt, Division, and Disorder – Can the US Avoid Decline?

Original Title: A Legendary Investor on How to Prevent America's Coming 'Heart Attack'

Original Author: Emily Holzknecht and Sophia Alvarez Boyd, The New York Times

Original Translation & Compilation: Peggy, BlockBeats

Editor's Note: Against the backdrop of high U.S. fiscal deficits, escalating geopolitical tensions, and a reevaluation of the dollar's creditworthiness, discussions about the United States are shifting from "Is it still the world's strongest economy?" to "Are the institutions, debt, and international order underpinning American hegemony still stable?"

But when "America is still strong" and "America is descending into disorder" are simultaneously true, a more critical question emerges: Is the U.S. facing an ordinary cyclical adjustment, or is there a fundamental loosening of its long-term order?

This article is compiled from an interview with Ray Dalio on The New York Times podcast *Interesting Times*. Dalio, founder of Bridgewater Associates, has long observed macro-order changes from the perspective of debt cycles, reserve currencies, and the rise and fall of empires.

In this conversation, Dalio breaks down the problems facing the U.S. into a set of deeper structural variables: how debt accumulates, how politics becomes fractured, how the international order erodes, and whether technology can still provide a new outlet for productivity.

First, the debt cycle is altering national capacity. In the past, the U.S., relying on its strong fiscal credibility and the dollar's reserve currency status, could finance itself at a relatively low cost for a long time, maintaining military spending, welfare, and global commitments. But now, with spending persistently exceeding revenue, the burden of debt and interest payments is continuously rising, and fiscal space is being steadily compressed. This means debt is no longer just a number on a balance sheet; it increasingly becomes a constraint on national capacity: whether it can continue to protect allies, sustain welfare, or bear the costs of war will all be limited by fiscal reality.

Second, domestic political division is becoming intertwined with the issue of wealth distribution. In the past, U.S. political differences could be partially absorbed through growth, taxation, and welfare expansion. Different groups had conflicting interests, but they still shared a degree of trust in the system. Now, wealth inequality, value clashes, and left-right antagonism are mutually reinforcing. Any plan to reduce the deficit will inevitably touch upon the question of "who pays more taxes and who gets fewer benefits." This means fiscal adjustment is no longer just a technical issue but a question of political legitimacy. The more reform is needed, the harder it is to build consensus.

Third, the international order is regressing from rules back to power. After 1945, the U.S. led the establishment of a world order centered on multilateral institutions, rule-based systems, and dollar credit. In the past, despite the Cold War, the U.S. maintained overwhelming advantages in finance and institutions. But now, geopolitical conflicts, the realignment of blocs, and supply chain security concerns are eroding the stability of this order. Analogies to Iran, the Strait of Hormuz, and even the Suez Crisis all point to the same issue: when rules cannot be enforced, the market will eventually reassess the relationship between power, credit, and security.

Fourth, pressure on the dollar does not mean the renminbi will directly take over. Dalio's assessment is more nuanced: the renminbi may become a medium of exchange in more trade scenarios, but this doesn't mean Chinese debt will become the world's most important store of wealth. The real question is, when all fiat currencies face devaluation pressures, where will capital seek safe assets? Gold's resurgence as a significant reserve asset for central banks is a sign of this uncertainty.

Fifth, AI could either alleviate the crisis or magnify it. Historically, technological progress has often been seen as a key outlet for the U.S. to fix its debt and growth problems. If AI can significantly boost productivity, it could indeed improve income, growth, and debt-servicing capacity. But now, AI is also creating new wealth concentration, job displacement, and security risks. It could be a buffer for fiscal pressure, or it could become a new amplifier of social division and geopolitical competition.

If this conversation were compressed into one judgment, it would be: America's problem is not a single crisis, but a simultaneous reassessment of debt, politics, the international order, and technological variables.

In this sense, the subject of this article is no longer just whether America is in decline, but a larger structural question: as the old order still functions but its underlying conditions are loosening, how should markets, nations, and individuals re-understand "safety" and "credit"?

The following is the original content (edited for readability):

Image Source: The New York Times

TL;DR

·Dalio's core judgment: The U.S. is not just experiencing a short-term weakness, but is entering a downward phase of a major cycle.

·America's real risk is not a lack of money, but debt being too high, slowly draining national capacity.

·The deficit is the hardest to solve because it ultimately becomes a political conflict over "who pays and who concedes."

·The underlying cause of U.S. political division is not just values, but an imbalance in wealth and benefit distribution.

·The post-war rules-based order led by the U.S. is failing, and the world is reverting to power politics.

·The dollar won't be immediately replaced by the renminbi, but the world will place more value on safe-haven assets like gold.

·AI could save growth, but it could also further tear apart employment, wealth, and security orders.

·Whether America can fix itself depends not on the market, but on education, social order, and avoiding war.

Original Content

I feel like we're in a moment of "the end of the American Empire" lately.

Partly it's the stalemate in the war with Iran; partly it's Donald Trump straining America's alliances; and partly, I think, it's a growing sense that America's biggest rival, China, is watching and waiting for its collapse.

This week's guest has been thinking about this for a long time. He has a grand historical theory predicting America's decline. In a way, he's an atypical Cassandra figure—constantly warning, but not always taken seriously.

Ray Dalio built Bridgewater Associates from scratch into one of the world's largest hedge funds. But now, what he most wants to talk about isn't just markets and investing, but the decline of the American empire and whether we can still pull this "American Empire" back from the brink.

The following is an edited transcript of an episode of *Interesting Times*. For the full effect, we recommend listening to the original audio. You can listen via the player above, or on The New York Times app, Apple, Spotify, Amazon Music, YouTube, iHeartRadio, and other podcast platforms.

The Cyclical Logic of the American Crisis

Ross Douthat (Host): Ray Dalio, welcome to *Interesting Times*.

Ray Dalio (Founder of Bridgewater Associates): Thank you. It is interesting to be on *Interesting Times* in "interesting times."

Douthat: Everyone says that. You are someone who has spent a career making bets, and quite a few of your calls have paid off over the past few decades. Lately, you've been suggesting that the United States of America might not be a particularly good bet right now.

So, for someone observing America now, trying to decide whether to bet on the "American Empire" maintaining its dominant position in the 21st century, what important forces or key factors should they watch?

How Debt Drains National Capacity

Dalio: I want to correct that framing first. I'm not saying America is a bad bet or a good bet. I'm just describing what is happening.

One thing I've learned in my roughly 50 years of investing is that many things happen in my lifetime that I haven't experienced before, but have happened many times in history.

So, I started studying history over the last 500 years, trying to understand the reasons for the rise and fall of reserve currencies and the empires behind them. You see a certain pattern repeating itself. There is indeed a "big cycle," which usually starts with the formation of a new order.

There are three types of orders: the monetary order, the domestic political order, and the international world order. These are three important forces constantly evolving.

Let's look at the first force, the monetary order. Within it is a debt cycle. When debt relative to income keeps rising, and debt service payments relative to income also keep rising, whether it's a country or an individual—

Douthat: Or an empire.

Dalio: Any entity, yes!

Douthat: Yes.

Behind Political Division is Money Distribution

Dalio: This squeezes other spending. That's the problem. For example, the U.S. now spends about $7 trillion a year and takes in about $5 trillion, meaning spending is about 40% above revenue. This deficit has persisted for a while, so the U.S. has accumulated debt about six times its income—and by income, I mean the money the government actually takes in.

Correct. But the consequence of this is that the currency itself gets devalued. That's the mechanism. That's why there are long-term debt cycles, short-term debt cycles, monetary cycles, and economic cycles—they push the economy from one recession to overheating to the next recession.

Associated with this is the domestic political and social cycle, which is closely tied to monetary issues. When a society experiences huge wealth gaps and value differences—

Douthat: You mean between rich and poor?

Dalio: Between rich and poor, and between people with different values. When these differences become irreconcilable, you get political conflict, and it becomes severe enough to put the entire system at risk.

So, I think the first cycle is happening. I also think the second cycle is happening—the irreconcilable divisions between the political left and right. We can talk more about those later.

The World Order is Returning to the Logic of Power

Douthat: And how do the international factors play into this?

Dalio: It's the same logic internationally. After a war ends, a dominant power emerges, and that dominant power establishes a new world order. An order is a system. The current order began in 1945.

Douthat: For us, yes. America was the dominant power building that system.

Dalio: Correct. America built a system that largely mirrored the American system because it was meant to be representative. The United Nations, for example, is a multilateral world order. Different countries can operate within it, and theoretically, there should be a rule-based system.

But the problem is, without an enforcement mechanism, the system isn't truly effective. It was an idealistic system, and a beautiful one while it lasted. But today, we no longer really have a truly multilateral, rules-based system.

We are reverting to the state that existed before 1945, which was the norm for most of history: geopolitical divisions keep emerging, like now with Iran.

How are these divisions resolved? You don't take it to an international court, wait for a ruling, and then have it enforced. Ultimately, it comes down to power.

Douthat: Right. But even during the heyday of what we understood as the "rules-based international order," first of all, for much of that history, America was in constant conflict with the Soviet Union.

Dalio: True.

Douthat: So the Cold War was always ongoing. The actual window where it was just the system operating without great power conflict was relatively short. And even then, American power was ultimately the decisive force, right?

Dalio: Of course. Because the Soviet Union didn't have real financial power. It had military power, but at the end of WWII, the U.S. had about 80% of the world's monetary wealth, half of global GDP, and was the dominant military power. So we were able to provide funds that were highly valued by those who received them. The Soviet system was a very limited part of that. It was almost bankrupt financially and certainly wasn't a major force.

Douthat: So the military power balance was real, but in terms of financial power, it was essentially American dominance.

Dalio: Correct. Fortunately, under "Mutually Assured Destruction," we didn't actually use that military power. Still, I remember the Cuban Missile Crisis—I was a kid watching it unfold, not knowing if there would be nuclear exchange. It didn't happen, and eventually, the Soviet Union collapsed.

Douthat: In your cyclical view of history, what role do contingent events play?

Dalio: All events follow one after another. I think the critical question is: will they lead to disputes? And in a world without a court system to resolve disputes, domestically or internationally, how are these disputes resolved?

Look at what's happening in the Middle East, particularly with Iran. There's a conflict, and it turns into war because there's no other way to resolve it. The world is now watching: can the U.S. win this war, or will it lose?

When we look at this, we almost measure it in black and white: who will control the Strait of Hormuz? Who will control nuclear materials? Can the U.S. win this war?

We should also see the alliances behind this. Russia and Iran tend to support each other more, just as there are supporting blocs on the other side.

Douthat: To emphasize again, what's most special about this moment compared to past decades is that the opposing bloc is stronger?

Dalio: It's the shift in relative power and the disintegration of the existing order. Also, huge creditor-debtor relationships are involved. When the U.S. runs large deficits for a long time, it must borrow. This becomes very dangerous during conflict. Interdependence is similarly problematic.

In other words, in a riskier world, you need to be self-sufficient. Because history teaches us that you can be cut off at any time. Either side can be cut off.

Douthat: Yes. I'm very interested in how these factors fit together. Suppose the Iran situation ends with a perception that the U.S. lost the war, or at least didn't achieve its goals. Maybe the Strait of Hormuz remains open, but the Iranian regime stays in power, and there's an impression that the U.S. tried something and failed. Do you think that impression would, in turn, affect perceptions of America's creditworthiness to repay its debts?

Dalio: I just spent about a month in Asia, meeting with leaders and others from different countries. This event has a huge impact, very much like the impact when England lost the Suez Canal—because Egypt controlled the Strait of Hormuz. That was seen as the end of the British Empire. In other words, it's a very big deal.

Douthat: Right, that was in the 1950s.

Dalio: Exactly. And that was also when people stopped wanting to hold British debt, among other assets. Now, different countries are thinking: Will America still protect us? Or has America lost the ability to protect us? Because the American public doesn't want a protracted war, so it has to be quick and cheap, and—

Douthat: Popular, right?

Dalio: Popular.

Douthat: And our wars aren't very popular right now. But I want to stay on the Suez analogy because I find it interesting. I've heard many people use it. In the Suez Crisis, Britain, France, and Israel essentially tried to retake control of the Suez Canal after Egypt nationalized it.

So there's a clear parallel with Iran: a key chokepoint for global trade, a conflict between a Western power and a regional power. But to me, the key to Suez was that Dwight Eisenhower and the U.S. essentially said to Britain: No, you can't do that.

Therefore, part of the crisis of confidence in the British Empire, the pound, and everything else came from the realization, as you said, that this was the post-WWII order, and America was the dominant player.

So, does China need to play a similar role now? Does there need to be a similar moment before people truly lose confidence in the U.S.? Must people see a new hegemon emerge before abandoning the old one?

Dalio: By the way, I don't think China will end up being a traditional hegemon in that sense. We can unpack that later.

Douthat: I'm very interested in that.

Dalio: But what I'm saying is that it was a combination of British debt problems and its obvious loss of power. Britain's decline had already started before Suez, as people realized America was not only a world power but in a better fiscal position.

Douthat: So, if the analogy holds, what is the parallel today? If people conclude America is not as trustworthy as we thought, less likely to pay its debts, etc.—and this might also relate to your point about China and whether it will become the new hegemon—will they turn to China? Will they abandon the dollar as a reserve currency? Where will capital flow if people lose confidence in the U.S.?

Dalio: I'll give you my view. But I also want to say that this is typical of every cycle. For example, when Britain replaced the Netherlands, the process was similar. Britain was financially stronger and more capable overall. The Netherlands lost, and there was a transfer from the Dutch Empire to the British Empire; the Netherlands had the reserve currency and debt at