Joe: Ray Dalio, the billionaire investor, ran the numbers on about 750 currencies that have existed since the 1700s. Guess how many are still around today? Only about 20%. And every single one of them has been devalued. Every. Single. One. Lewis: Wait, all of them? That's insane. So the cash in my wallet is basically on a long, slow march to zero? That’s… comforting. Joe: It makes you look at it a little differently, doesn't it? And that shocking reality is the entry point for today's book, Principles for Dealing with the Changing World Order by Ray Dalio. What's fascinating is that Dalio isn't a historian; he's the founder of Bridgewater, one of the world's biggest hedge funds. He developed these principles not for academia, but to survive—and win—in the most brutal financial markets, after realizing his biggest mistakes came from missing historical patterns he'd never seen in his own lifetime. Lewis: That’s a great hook. It’s not an academic exercise; it’s a survival guide written by someone who has billions of dollars on the line. The book is highly-rated, but I’ve also seen some pretty polarizing reviews. Some critics say he’s just stating the obvious, that empires rise and fall. Joe: They do, and he acknowledges that. But his point is that most of us, especially investors, act as if it won't happen to us, in our lifetime. We suffer from a kind of historical amnesia. Lewis: Okay, so if our lifetime experience is useless, what are we supposed to look at? Where do we even start?

Joe: We start with Dalio's most fundamental idea: the future will be radically different from the recent past, but it will look a lot like other periods in history. He calls this the "Big Cycle." Most of us, he argues, are like ants, so focused on carrying our little crumb of bread that we don't see the giant foot about to come down. We just assume the path ahead will be like the path behind us. Lewis: That makes sense. We all have a recency bias. But that sounds a bit abstract. 'Cycles.' How does that actually play out in real life? Give me a concrete example of when that assumption blew up. Joe: He has the perfect story for this. It’s August 1971. A 22-year-old Ray Dalio is a clerk on the floor of the New York Stock Exchange. The world's financial system is built on something called the Bretton Woods agreement, which basically means the US dollar is pegged to gold. You could, in theory, walk up to the US government with 35 dollars and demand an ounce of gold. This was the bedrock of global finance. Lewis: Right, so money was 'hard' money. It was backed by something real and tangible. Joe: Exactly. But the US had been spending a ton on the Vietnam War and social programs, and it was printing a lot of dollars to pay for it all. Other countries started getting nervous, thinking, "Wait a minute, does the US actually have enough gold to back up all these dollars they're printing?" So they started showing up and asking for their gold. Lewis: I can see where this is going. It's like a bank run, but on a national scale. Joe: Precisely. So on a Sunday night, August 15th, President Richard Nixon gets on television and makes a stunning announcement. He declares that the United States will no longer convert dollars to gold at a fixed value. He unilaterally severed the link. In simple terms, the US defaulted on its promise. Lewis: Whoa. So what did the young, brilliant Ray Dalio think was going to happen on Monday morning? Joe: He thought the world was ending. He walked onto the floor of the stock exchange absolutely convinced the market was going to crash. The government just broke its most fundamental promise. Logically, stocks should plummet. Lewis: And what happened? Joe: The market exploded. It went up by about 4 percent, a huge jump for the time. The dollar plummeted, but stocks soared. Dalio was in total shock. He said it was like a punch in the face. Everything he thought he knew about cause and effect was wrong. Lewis: Okay, I’m with him. That makes no sense. Why on earth would the market go up? Joe: Because he had never lived through a currency devaluation before. When a country's currency is devalued, it makes holding cash a terrible idea. So, all that money floods out of cash and into assets—like stocks, or real estate, or anything that holds its value better than the currency that's being debased. It was a painful, but priceless, lesson for him. Lewis: That’s incredible. So his biggest mistake came from assuming the rules he knew would always apply. He was blindsided by a historical event that had happened many times before, just not in his lifetime. Joe: Exactly. And that’s the core of the book. We have to study the past, especially the big, messy, transformative periods, because the rules of the game can change in an instant. And Dalio argues they're changing right now.

Lewis: Okay, so Dalio learned to look at history. What does he see when he looks at our world right now? What's making this moment so different and, frankly, so scary? Joe: He sees what he calls a "perfect storm," where three massive, once-in-a-lifetime forces are all converging at the same time. He compares them to tectonic plates shifting. It's not just one thing; it's the dangerous alignment of all three. Lewis: Tectonic plates. That sounds serious. What are they? Joe: The first is the Long-Term Debt Cycle. For the last 80 years or so, we've been in a massive cycle of credit expansion. Governments, companies, individuals—everyone has taken on huge amounts of debt. To keep the party going, central banks have pushed interest rates to near zero. But now, we're at the end of that road. There's so much debt that the old tricks, like just lowering interest rates, don't work anymore. Lewis: So the credit card is maxed out, and the bank won't give us another one. Joe: A perfect analogy. The second force is the Internal Order and Disorder Cycle. This is about the conflict within countries. Dalio points to the massive, widening gaps in wealth, opportunity, and political values. He did a study where he split the US economy into the top 40% and the bottom 60%, and he found they are living in two completely different countries. The bottom 60% has seen stagnating incomes, rising deaths of despair, and feels the system is rigged against them. Lewis: And that leads to populism, right? People feeling like the elites have failed them, so they turn to strongman leaders who promise to fight for the common person. Joe: Exactly. And this isn't a left or right thing; it happens on both sides. This internal conflict, this feeling that the country is tearing itself apart, is the second tectonic plate. It's a classic sign of an empire in the later stages of its cycle, and it mirrors the conditions of the 1930s. Lewis: Okay, so we have a massive debt problem and we're fighting amongst ourselves. What’s the third force? Joe: The third is the External Order and Disorder Cycle. This is the classic conflict between countries. Specifically, the rise of a new power to challenge the existing dominant power. For the last 75 years, the US has been the undisputed heavyweight champion of the world. But now, for the first time, there's a real contender in the ring: China. Lewis: So it's not just one thing. It's like having a massive credit card bill, while you're also in a huge fight with your family, and the new neighbors are building a bigger house and challenging your spot as king of the cul-de-sac. That's the perfect storm. Joe: That's the perfect storm. And Dalio's point is that while we've seen each of these things happen before in history, it's the first time in any of our lifetimes that all three are happening at once. That's what makes this moment so perilous and so important to understand.

Lewis: And this perfect storm is what pushes empires through a predictable life cycle, right? This is the 'Archetype of Empire' you mentioned. Lay it out for me. How does it work? Joe: It's like a biography of an empire, and it has a very clear, almost tragic, arc. Dalio uses the Dutch Empire as a perfect case study. In the 1600s, they were the United States of their day. They were a small, scrappy country that rose to dominate the world. Lewis: How did they do it? Joe: They entered what Dalio calls Stage 2 and 3 of the cycle: the rise. They had the best education system in the world. They were incredibly inventive—they created the first publicly traded company, the Dutch East India Company, and essentially invented modern capitalism and the stock market. Their ships were the most advanced, allowing them to control about half of all world trade. The Dutch guilder became the world's first reserve currency. They were productive, innovative, and cooperative. Lewis: They sound unstoppable. What went wrong? Joe: They reached the top, which is Stage 4. And at the top, the seeds of decline are sown. Their success made them expensive. Workers demanded higher wages. They became a bit complacent. They started borrowing more to finance a comfortable lifestyle rather than investing in new productivity. They started to enjoy the fruits of their labor more than the labor itself. Lewis: They got rich, fat, and happy. Joe: Exactly. And while they were getting comfortable, a hungrier, cheaper, and more ambitious rival was watching and learning: the British. The British copied Dutch ship designs and financial innovations, but they did it with cheaper labor. They started to out-compete the Dutch. Then came the wars. The Dutch fought a series of costly wars with the British and the French, which drained their finances and broke their military power. Lewis: So the very success of the Dutch sowed the seeds of their own failure. And the hungrier British ate their lunch. Is Dalio saying that's where the US is now? Joe: That is his core, flashing-red-light warning. He tracks eight key determinants of power—things like education, innovation, trade dominance, military strength, and reserve currency status. And when he looks at the charts, he sees the US line, while still high, trending down, and China's line trending up at a very rapid pace. He sees the US spending more than it earns, borrowing from its rival, and getting bogged down in internal conflict, just like the Dutch and the British did before their declines. Lewis: So it's the same script, just with different actors and a 21st-century setting. Joe: That's the argument. The clothes are different, the technology is different, but the human dynamics of ambition, complacency, debt, and conflict are timeless.

Joe: So Dalio's message is that we're not in normal times. We're at a critical juncture in a massive, 500-year cycle, where the three great forces of debt, internal conflict, and external rivalry are all peaking. It's a pattern that has toppled empires before, from the Dutch to the British. Lewis: It's a pretty bleak picture, honestly. It feels a bit deterministic, like we're just passengers on this historical rollercoaster heading for a crash. A lot of the criticism of the book points to that, saying it's too fatalistic. Joe: I can see that, but I think that misses his main point. The title isn't "The End of the World is Nigh." It's Principles for Dealing with the Changing World Order. His whole thing is that if you understand the machine, you can navigate it. The point isn't to be terrified, but to be aware. Lewis: To see the pattern so you're not surprised when the ground shifts beneath your feet, right? Like he was on the stock market floor in 1971. The pain wasn't just losing money; it was the shock of not understanding the world. Joe: Exactly. The first principle is just to understand the game you're in. And right now, the game is changing. Being aware of the cycle, understanding the forces at play, and recognizing the historical parallels—that's not a recipe for despair. It's a roadmap for resilience. It's about being prepared, not panicked. Lewis: That’s a much more empowering way to look at it. It’s not about predicting the exact future, but understanding the weather so you know whether to bring an umbrella or build an ark. Joe: That's a perfect way to put it. And according to Dalio, the storm clouds are gathering. Joe: This is Aibrary, signing off.