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

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

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

Translation and Compilation: Peggy, BlockBeats

Editor's Note: Amidst high U.S. fiscal deficits, escalating geopolitical conflicts, and a reassessment of dollar credit, discussions about America are shifting from "Is it still the world's strongest economy?" to "Are the institutions, debt, and international order underpinning U.S. hegemony still stable?"

But when "America remains strong" and "America is becoming disorderly" are both true, a more critical question emerges: Is the U.S. facing a typical cyclical adjustment, or is it the loosening of a 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 U.S. problem into a set of deeper structural variables: how debt accumulates, how politics fractures, how the international order fails, and whether technology can still provide a new productivity outlet.

First, the debt cycle is changing national capacity. In the past, the U.S., relying on strong fiscal credit and the dollar's reserve currency status, could finance itself at low costs over the long term, maintaining military spending, welfare, and global commitments. Now, with expenditures persistently exceeding revenues, debt and interest burdens are rising, and fiscal space is continuously shrinking. This means debt is no longer just a number on a balance sheet; it gradually translates into constraints on national action capacity: the ability to protect allies, sustain welfare, and bear the costs of war will all be limited by fiscal reality.

Second, domestic political division is increasingly tied to the distribution of money. Previously, U.S. political differences could be partially absorbed through growth, taxation, and welfare expansion; different groups, though having conflicting interests, still shared a degree of institutional trust. Now, the wealth gap, value conflicts, and left-right opposition are superimposed, making any deficit reduction plan 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 problem of political legitimacy. The more reform is needed, the harder it is to build consensus.

Third, the international order is shifting from rules back to power. After 1945, the U.S. led the establishment of a world order centered on multilateral institutions, a rules-based system, and dollar credit. In the past, even during the Cold War, the U.S. held overwhelming financial and institutional advantages. Now, geopolitical conflicts, bloc realignments, and supply chain security concerns are weakening this order's stability. 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 doesn't 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 value. The real question is, when fiat currencies generally face devaluation pressure, where will capital seek safe assets? Gold's resurgence as a major part of central bank reserves reflects this uncertainty.

Fifth, AI could either mitigate or amplify the crisis. In the past, technological progress was often seen as a key outlet for the U.S. to address debt and growth issues. If AI can significantly boost productivity, it could indeed improve income, growth, and debt-servicing ability. But now, AI is also creating new wealth concentration, job displacement, and security risks. It could be a buffer for fiscal pressure or a new amplifier of social division and geopolitical competition.

If this conversation is distilled into one judgment, it is this: America's problem is not a single crisis, but that debt, politics, the international order, and technological variables are all entering a phase of reassessment simultaneously.

In this sense, the subject of this article is no longer just whether the U.S. is declining, but a larger structural question: when the old order is still functioning, but its underlying conditions are loosening, how should markets, states, and individuals reinterpret "safety" and "credit"?

Below is the original content (edited for readability):

Image Source: The New York Times

TL;DR

· Dalio's core judgment is that the U.S. is not just weakening in the short term; it is entering a downturn phase of a major cycle.

· The real risk for the U.S. isn't a lack of money, but that debt is too high, gradually draining national capacity.

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

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

· The post-WWII 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 boost growth, but it could also further tear apart employment, wealth, and security order.

· Whether the U.S. can recover depends not on the market, but on education, social order, and avoiding war.

Original Content

I feel like, recently, we seem to be in a moment of an "American Empire's end."

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

Our guest this week 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 unlikely Cassandra—constantly warning, but not always taken seriously.

Ray Dalio built Bridgewater Associates, one of the world's largest hedge funds, from scratch. But now, what he most wants to talk about is no longer just markets and investing, but the decline of the American empire and whether we can pull the "American Empire" back from the brink.

Below 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's certainly interesting to be on "Interesting Times" in "interesting times."

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

So, for someone observing America now, trying to decide whether to bet on the "American Empire" remaining dominant in the 21st century, what are the important forces or key factors they should look at?

How Debt Drains National Capacity

Dalio: I want to correct one thing 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 events very important to me had never happened in my lifetime, but they had happened many times in history.

So, I started studying the last 500 years to understand the rise and fall of reserve currencies and the empires behind them. You see a pattern repeating itself. There is indeed a "big cycle," and it often 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.

Look at the first force, the monetary order. There is a debt cycle. When debt rises relative to income, and debt service costs rise relative to income—whether for a country or an individual—

Douthat: Or an empire.

Dalio: Any entity!

Douthat: Yes.

Behind Political Division is the Distribution of Money

Dalio: This squeezes other spending. That's the problem. For example, the U.S. now spends about $7 trillion annually and takes in about $5 trillion, meaning spending is about 40% higher than revenue. This deficit has persisted for a while, so the U.S. has accumulated debt roughly six times its income—here, income meaning the actual money the government receives.

Yes. But the result is that the currency itself gets devalued. That's the mechanism. That's why we have long-term debt cycles, as well as short-term debt cycles, monetary cycles, and economic cycles—driving the economy from recession to overheating to the next recession.

Connected to this is the domestic political and social cycle, which is closely linked to monetary issues. When a society has huge wealth gaps and value differences—

Douthat: You mean the gap between rich and poor?

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

So, I think the first cycle is happening. I also think the second cycle is happening—the irreconcilable divide between the political left and right. We can discuss these in more detail later.

The World Order is Returning to Power Politics

Douthat: How do international factors come into play?

Dalio: Same logic. After a war ends, a dominant power emerges, and that power establishes a new world order. Order is a system. This current order began in 1945.

Douthat: For us. The U.S. was the dominant power building that system.

Dalio: Yes. The U.S. built a system largely modeled on its own institutions, intended to be representative. The UN, for instance, was a multilateral world order. Different countries could operate within it, and ideally, there was a rules-based system.

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

We're returning to the state that existed before 1945, for most of history: geopolitical differences constantly emerge, like the current situation around Iran.

How are these differences resolved? You don't take it to the International Court of Justice, wait for a ruling, and then have it enforced. What ultimately matters is power.

Douthat: Yes. But even at the height of the "rules-based international order" as we understood it, first, the U.S. was in conflict with the Soviet Union for most of that history.

Dalio: Yes.

Douthat: So the Cold War was ongoing. The window where the system ran purely, free from great power conflict, was relatively short. And even then, U.S. power was ultimately decisive, right?

Dalio: Of course. Because the Soviet Union didn't have real power. It had military power, but at the end of WWII, the U.S. controlled roughly 80% of global monetary wealth, half the world's GDP, and was the dominant military power. So we could provide funding externally, and recipients valued that money. The Soviet system was a limited part of that. Financially, it was nearly bankrupt and certainly not an important power.

Douthat: So, the military balance of power was real, but the financial balance of power was essentially dictated by the U.S.

Dalio: Yes. Luckily, 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 we'd have a nuclear exchange. But it didn't happen, and later the Soviet Union dissolved.

Douthat: What role do contingent events play in your cyclical view of history?

Dalio: All events happen in sequence. I think the key question is: do they trigger disputes? And in a world without a court system to resolve disputes, both domestically and internationally, how do these disputes get resolved?

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

We look at this almost 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 recognize the alliances behind this. Russia and Iran tend to support each other, just as there are supporting powers on the other side.

Douthat: Again, compared to the last few decades, isn't the most distinctive thing now that the other side's power has grown stronger?

Dalio: It's about changes in relative power and the disintegration of the existing order. Additionally, enormous credit-debt relationships are entangled. For example, when the U.S. runs large deficits for a long time, it has to borrow money. In times of conflict, this becomes very dangerous. Interdependence works the same way.

In other words, in a higher-risk world, you need to be self-sufficient. Because history teaches us that you can be cut off at any time. Any party can be cut off.

Douthat: Yes. I'm very interested in how these factors interlock. Suppose the Iran situation ends with people believing the U.S. lost the war, or at least didn't achieve its goals. Perhaps the Strait of Hormuz remains open, but the Iranian regime remains in power, and the perception is that the U.S. tried something and failed. Do you think that perception could, in turn, affect people's judgment of the credibility of U.S. debt repayment?

Dalio: I just spent about a month in Asia, meeting with leaders and officials from different countries. This issue has a huge impact, much like the effect when Britain lost the Suez Canal—because Egypt took control. That was seen as the end of the British Empire. So, it's a very big deal.

Douthat: Yes, that was in the 1950s.

Dalio: Exactly. And that was the time people stopped wanting to hold British debt, among other things. Now, different countries are thinking: Will the U.S. still protect us? Or is the U.S. no longer capable of protecting us? Because the American public doesn't want a long, drawn-out war, so it has to be quick, cheap, and—

Douthat: And popular, right?

Dalio: Popular.

Douthat: And our wars aren't usually very popular now. But I want to stay on the Suez analogy because I find it interesting. I hear many people using it. In the Suez crisis, Britain, France, and Israel essentially tried to retake the canal after Egypt nationalized it.

So, the parallel with Iran seems clear: a key choke point for global trade, a conflict between Western powers and a regional power. But the key in the Suez case was that Dwight Eisenhower and the U.S. basically told Britain: No, you can't do this.

So, the crisis of confidence in the British Empire, the pound, etc., came partly from the realization—as you said—that this was the post-WWII order, and the U.S. was the dominant power.

Now, does China need to play a similar role? Does there need to be a similar moment for people to truly lose confidence in the U.S.? Do people need to see a new hegemony emerge before they abandon the old one?

Dalio: By the way, I don't think China will ultimately become that kind of traditional hegemonic power. We can discuss that later.

Douthat: I'm very interested in that.

Dalio: But what I'm saying is that it was the combination of Britain's debt problem and its obvious loss of power. Britain's decline had started well before the Suez crisis, because people already realized the U.S. was not only a world power but also in a much better financial position.

Douthat: So, if the analogy holds, what is its equivalent today? If people decide the U.S. is no longer as trustworthy as we thought, less likely to repay its debts, etc.—and this might also relate to your point about China and whether it will become the new hegemon—would people turn to China? Would they abandon the dollar as the reserve currency? Where does the money go 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 instance, when Britain replaced the Netherlands, it was similar. Britain was financially stronger and had greater overall capacity. The Netherlands lost, and there was a transfer from the Dutch Empire to the British Empire; the Dutch at that time had the reserve currency and debt. Similar things have happened repeatedly in the same way.

So, you don't necessarily need a specific figure like President Eisenhower—

Douth