Ray Dalio: Debt, Division, and Disorder – Can the US Escape 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: Peggy, BlockBeats

Editor's Note: Against the backdrop of high US fiscal deficits, escalating geopolitical conflicts, and a re-examination of the dollar's creditworthiness, discussions about America are shifting from "Is it still the world's strongest economy?" to "Are the institutions, debt, and international order underpinning US hegemony still stable?"

But when "America remains powerful" and "America is in disarray" are simultaneously true, a more critical question emerges: Is the US facing a routine cyclical adjustment, or a loosening of its long-term order?

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

In this conversation, Dalio dissects the American problem into a set of more fundamental structural variables: how debt accumulates, how politics fractures, how the international order fails, and whether technology can still offer a new productivity outlet.

First, the debt cycle is changing national capacity. In the past, the US, relying on its strong fiscal credit and the dollar's reserve currency status, could finance itself at a relatively low cost for long periods, maintaining military spending, welfare, and global commitments. But now, spending consistently exceeds revenue, debt and interest burdens are rising, and fiscal space is being continuously compressed. This means debt is no longer just a number on a balance sheet; it gradually translates into constraints on national capacity—whether the US can continue to protect allies, maintain welfare, or bear the costs of war will be limited by fiscal realities.

Second, domestic political division is becoming intertwined with the issue of money distribution. In the past, American political differences could be partially absorbed by growth, taxes, and welfare expansion; different groups had conflicts of interest but still shared a set of institutional trust. Now, wealth inequality, value conflicts, and left-right antagonism are compounding. Any plan to reduce the deficit inevitably touches the question of "who pays more taxes, 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 shifting from rules back to power. After 1945, the US led in establishing a world order centered on multilateral institutions, rule-based systems, and the dollar's credit. Even during the Cold War, the US had overwhelming advantages in finance and institutions. But now, geopolitical conflicts, realignment of blocs, and supply chain security issues are weakening this order's stability. Analogies to Iran, the Strait of Hormuz, or even the Suez Crisis all point to the same problem: when rules cannot be enforced, markets will ultimately reassess the relationship between power, credit, and security.

Fourth, pressure on the dollar doesn't mean the renminbi will directly take over. Dalio's judgment 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 fiat currencies generally face pressure to depreciate, where will capital seek safe assets? Gold's return as a significant central bank reserve asset is a manifestation of this uncertainty.

Fifth, AI could either alleviate the crisis or amplify it. In the past, technological progress was often seen as a key outlet for the US to fix its debt and growth problems; if AI can significantly boost productivity, it could indeed improve revenue, 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 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 period where 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 not just whether America is in decline but a larger structural question: when the old order is still functioning but its underlying conditions are eroding, 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 is that the US isn't just weakening in the short term; the big cycle is entering a downward phase.

· The real risk for the US isn't lack of money, but too much debt, which will slowly erode national capacity.

· The deficit is the hardest problem because it inevitably becomes a political conflict over "who pays and who concedes."

· The underlying cause of American political division isn't just values, but an imbalance in wealth and interest distribution.

· The post-WWII rule-based order led by the US is failing; the world is returning to power politics.

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

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

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

Original Content

I feel like recently we are in a moment that feels like the end of the American Empire.

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

Our guest this week has been looking at this issue for a long time. He has a grand historical theory predicting America's decline. In a way, he is an atypical Cassandra figure—constantly issuing warnings, not always taken seriously.

Ray Dalio founded Bridgewater Associates, one of the world's largest hedge funds, from scratch. But today, what he most wants to talk about is no longer just markets and investing, but the decline of the American empire, and whether it's possible to pull this 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. Being on Interesting Times in interesting times is indeed interesting.

Douthat: Everyone says that. You are someone who has spent a 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 might not be a particularly good bet right now.

So, if someone is watching America now, trying to decide whether to bet on the "American Empire" maintaining its dominant position in the 21st century, what are the important forces or key factors they should look at?

How Debt Drains National Capacity

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

One thing I 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 before in history.

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

Look at the first force, the monetary order. Within it is a debt cycle. When debt rises relative to income, and debt service payments rise relative to income, whether it's a country or an individual—

Douthat: Or an empire.

Dalio: Any entity!

Douthat: Yes.

Behind the Political Division is Money Distribution

Dalio: It crowds out other spending. That's the problem. For example, the US now spends about $7 trillion a year and takes in about $5 trillion, meaning spending exceeds income by about 40%. This deficit has been going on for a while, so the US has accumulated debt about six times its income—here income refers to the money the government actually collects.

That's right. But the result of this is that the value of money itself gets debased. That's the mechanism. And that's why there are long-term debt cycles, as well as short-term debt cycles, monetary cycles, and economic cycles—pushing the economy from recession to overheating to the next recession.

Related to this is the domestic political and social cycle, which is closely tied to monetary issues. When a society sees huge gaps in wealth and values—

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 serious 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 differences between the political left and right. We can elaborate on that later.

The World Order is Returning to Power Politics

Douthat: And how do the international factors play in?

Dalio: The same logic applies internationally. After a war ends, a dominant power emerges, and that dominant power establishes a new world order. Order is a system. This current order started in 1945.

Douthat: For us, yes. The United States was the dominant power that established this system.

Dalio: Right. America built a system that was largely modeled on its own institutions, intended to be representative. For example, the United Nations is a multilateral world order. Different countries can operate within it, and theoretically, there should be a rules-based system.

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

We are returning to the state that existed before 1945, for most of history: geopolitical differences will keep emerging, like what's happening now around Iran.

How are these differences resolved? You don't bring it to the International Court of Justice, wait for a ruling, and then see it enforced. Ultimately, what matters is power.

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

Dalio: Correct.

Douthat: So the Cold War was ongoing. The window where the system operated independently of great power conflict was actually relatively short. And even then, American power was ultimately the decisive force, right?

Dalio: Of course. Because the Soviet Union didn't have real strength. It had military strength, but at the end of WWII, the US had about 80% of the world's monetary wealth, half of global GDP, and was the dominant military power. So we had the capacity to provide funds, and those receiving the funds valued them. The Soviet system was a very limited part of that. Financially, it was bankrupt, not a significant force.

Douthat: So the military balance of power was real, but in the balance of financial power, the US had basically the final say.

Dalio: Correct. Fortunately, with the mutual assured destruction paradigm, 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 nuclear conflict would occur. But it didn't, and later the Soviet Union collapsed.

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

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

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

We tend to look at this in black and white terms: who will control the Strait of Hormuz? Who will control nuclear materials? Can the US win this war?

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

Douthat: Again, compared to the last few decades, what's most specific about this moment is that the other side's camp is stronger, right?

Dalio: It's the change in relative power and the unraveling of the old order. Also, huge creditor-debtor relationships are involved. For instance, when the US runs large deficits chronically, it has to borrow. And in times of conflict, this becomes very dangerous. Interdependence is similar.

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

Douthat: Yes. I'm very interested in how these factors fit together. Let's say the Iran situation ends with a perception that the US lost the war, or at least didn't achieve its goals. Maybe the Strait of Hormuz is still open, but the Iranian regime remains in power, and the outside world has the impression that America tried something and failed. Do you think that impression would then feed back into people's assessment of America's creditworthiness to repay its debts?

Dalio: I just spent about a month in Asia, meeting with leaders and others from various countries. This matter is very significant, very much like the impact when Britain lost the Suez Canal—because Egypt controlled the Suez Canal. That was seen as the beginning of the end of the British Empire. In other words, it's a very big deal.

Douthat: Yes, that was in the 1950s.

Dalio: Right. And that was exactly when people stopped wanting to hold British debt, etc. Now, different countries are thinking: Will America still protect us? Or does America lack the capacity to protect us? Because the American public doesn't want a long, drawn-out war. So the war has to be quick, not too costly, and—

Douthat: Popular, right?

Dalio: Popular.

Douthat: And our wars these days aren't usually very popular. But I want to stay on the Suez analogy for a moment, because I find it very interesting. I hear a lot of people using it. In the Suez crisis, Britain, France, and Israel essentially tried to retake control of the Suez Canal after Egypt nationalized it.

So obviously there's a parallel with Iran: a key chokepoint for global trade, conflict between Western powers and a regional power. But it seems to me that the key aspect of the Suez event was that Dwight Eisenhower and the US essentially told Britain: No, you can't do that.

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

So does China now need to play a similar role? Does there need to be a similar moment for people to truly lose confidence in America? To abandon the old hegemon, do we first need to see a new hegemon emerge?

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

Douthat: I'm very interested in that.

Dalio: But I want to say that it was the combination of Britain's debt problem and its obvious loss of power. Britain's decline started long before Suez, because people already recognized that America was not only a world power but in a better fiscal position.

Douthat: So if the analogy holds, what's the equivalent today? If people decide America isn't as trustworthy as we thought, less likely to repay its debts, etc.—and maybe this relates to your point about China and whether it will be the new hegemon—will they turn to China? Will they abandon the dollar as a reserve currency? If people lose confidence in America, where does capital go?

Dalio: I'll share my view. But I also want to say that this is typical of every cycle. For instance, when Britain replaced the Netherlands, the process was similar. Britain was financially stronger and had more comprehensive capabilities. 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 that time. Similar things have happened repeatedly in the same way.

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

Douthat: No, but you need a