Ray Dalio – The Big Multigenerational Psychological Cycle

Ray Dalio – The Big Multigenerational Psychological Cycle – 4PT

“The Big Multigenerational Psychological Cycle” is an exercise in the transactional analysis of the wealth of nations. There are five stages.

Stage 1: People and their countries are poor and they think of themselves as poor.
Stage 2: People and their countries are richer and they think of themselves as poor.
Stage 3: People and their countries are rich and they think of themselves as rich.
Stage 4: People and their countries are poorer and they think of themselves as rich.
Stage 5: People and their countries are poor and they think of themselves as poor.

I like this principle. It reminds me of a sign I have in my home office, “A saver gets rich by pretending to be poor, a spender gets poor by pretending to be rich.” In my lifetime, I have experienced a small amount of both. If we were to determine what stage our nation is in, it is clearly stage 4 with a bad prognosis.

Another important of Dalio’s principle is “Throughout time and in all countries the people who have the wealth are the people who own the means of wealth production and, in order to maintain it, they work with the people who have the power to set and enforce the rules.”(92)

Although the political theory that defines the nation-state came into being in modern times, the principles affecting the rise and decline of a nation’s economic and military power have always been the same. The Big Cycle of money, credit, debt and economic activity deals with the same basic financial realities, and always has.(104)

The principles are set in the laws of nature. This I interpret to be God’s Creation ordinances in Genesis 1-3 and illustrated throughout Scripture. When you understand how money and credit work, you will understand the cycle of the 20th century – from the Roaring ’20s, the Great Depression, WWII, and the resulting world order as it was created in 1944/45. Most people alive today were born after this time, or else were too young to remember the significance, so our perspective is the only world order we have lived in. We assume it will always exist this way, even though changes in the world order happen frequently in history. These historical cycles occur in nature, but are also purposefully designed by those in power who understand the times.

Dalio’s thesis mainly deals with the growth and decline of money and credit cycles. This is useful, because it is not just speculation, but can be confirmed with hard math. Once we see the economic cycles, it is easy to confirm that these are matched by the less concrete political, sociological, philosophical and spiritual shifts that occur in the world order as well.

The best way to understand how money and credit works with an entire nation is to understand first how it affects you as an individual.

Principle: “One entity’s debts are another’s assets. An entity that defaults reduces other entities’ assets, which requires them to cut their spending. This dynamic produces a self-reinforcing downward debt and economic contraction that becomes a political issue as people argue over how to divide the shrunken pie.” (105-106) This is the number one principle not only because those in debt run the risk of not being able to pay their debts, but those holding the debt take an even bigger risk in the case that they cannot be paid back. Creditors are only as rich as the accumulated debts and spending of their clientele. When the debtors default, those holding the debt also become poorer.

Principle: “Debt eats equity.” (106) Little debts and extra unnecessary payments eat equity. What could you do with that extra money? Put it into savings? Pay down your other debts? After so many years of your life, this “eaten equity” or “eliminated debt” can determine whether you are poor or rich. The same is true with the Big Cycle of national economies.

Principle: “There isn’t a fixed amount of money and credit in existence. Money and credit can easily be created by central banks.”(106) Most people think of money as a fixed supply, but in the Liberal economic model, credit is money, and the Federal Reserve has the power to create more money by issuing more credit. This is not always credit secured with tangible assets. People are given credit cards and lines of credit based on their credit scores, which is their past ability to pay back debts. So everytime you are given credit and you spend it, new money is created.

Principle: “Whenever credit is paid into the system, it brings inflation.”(108) Over a long term, the debt is paid back with interest, but let’s say that cost of inflation actually is higher than the interest rate – or that the interest rate is set by the central bank to near zero. Over a period of time debt holders would not be able to collect enough money to make a profit and pay their own expenses. On the other hand, a person owing a mortgage of six percent per year, can make a lot of money in equity in times of high inflation.

Principle: “Debt eats equity, but central banks can feed debt by printing money instead.”(108) This is similar to the principle of revolving credit. Let’s say you have a credit line set to near 0 percent. You spend $3000. Each month you are required to make a $150 payment, but then you use that $150 credit over and over again to pay a monthly bill. The $3000 never gets paid back. Eventually inflation devalues the dollar to the point where $3000 is worth less to the credit line holder. Likewise, when the central bank keeps creating money out of thin air in the form of credit, inflation creates a situation in which the debt holders eventually have less spending power and have to spend less than they earn, while debtors continue to spend more than they earn. At the end of the cycle a huge transfer of wealth flows from debt holders to debtors as lenders declare bankruptcy.

Principle: When countries desperately need foreign reserve currencies to service their reserve currency-denominated debts, and to buy things from sellers who only accept reserve currencies, they will eventually go bankrupt. Think of this as a giant pool into which we are always adding more money into the world economy by creating credit. This is our relationship with countries who use the USD as reserve currency. We share the pool of reserve currency. Inflation in our country affects inflation in the others that use our reserve currency for trade. In this way, we can devalue our currency and still buy goods and services from foreign countries at low prices. Countries who use the USD reserve currency are in fact sharing in US debt. Eventually, they too won’t have enough assets to pay their debts unless they divest from the dollar and invest in some other reserve.

Principle: The biggest problem for world powers who hold the reserve currency is that at the end of the Big Cycle the national debt becomes enormous. Debts and other liabilities (such as those for military expenditures, pensions, healthcare, insurance) are very large relative to the value of their assets, which in the case of the US is our large GDP. In 1980, the US GDP to national debt ratio was 31 percent, but by 2023 it had climbed to over 120 percent. At the same time, those who hold the reserve currency for trade might default or divest themselves of the USD in order to deal with a more stable emerging world currency that is more of a hedge against inflation. This is one of the reasons why a gold-pegged BRICS currency could have a damaging effect on the status of the USD.

Book

The Fourth Political Theory in Biblical Perspective

Jay Rogers

A Christian civilization is emerging from under the wreckage of Modern culture.

A Christian civilization is emerging from under the chaos that has been strewn throughout the wreckage of Modern culture. As dawn breaks through the darkness, many will be awakened to a new understanding of the fulfillment of the Law through love and grace. Many will comprehend, as if for the first time, what it means to be truly human. We are being prepared to overcome a world system that has denied God, faith, family, and even humanity itself. This book analyzes and critiques several leading experts in the theory of the rising multipolar world including –

• The Changing World Order by Ray Dalio
• The Clash of Civilizations by Samuel Huntington
• The Fourth Political Theory by Aleksandr Dugin