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the monetary order changing, breaking down in a certain way.
Ray Dalio warns the global monetary, political, and geopolitical orders are breaking down, putting the world on the brink of a capital war.
Key Takeaways
- Global monetary, political, and geopolitical orders are simultaneously breaking down, increasing systemic risk.
- Historical debt and political cycles help explain current market volatility and social tensions.
- The shift from a multilateral to a more unilateral world order is accelerating geopolitical instability.
- Gold remains the safest store of wealth amid fiat currency uncertainty and rising capital war risks.
- Understanding these cyclical forces is critical for anticipating future economic and geopolitical developments.
Summary
- Ray Dalio discusses the breakdown of the global monetary, domestic political, and geopolitical orders.
- He identifies five major forces driving current market volatility: money/credit/debt cycles, political polarization, geopolitical shifts, acts of nature, and technological advances.
- Dalio highlights the historical patterns of reserve currency cycles and the significance of the 1971 US monetary system shift from gold-backed currency to fiat money.
- He explains the debt cycle where rising debt relative to income leads to economic stress and asset sell-offs.
- Political polarization between left and right emerges during economic conflicts, fueling populism and social unrest.
- The post-1945 multilateral world order dominated by the US is breaking down into a more unilateral geopolitical environment.
- Acts of nature such as pandemics and natural disasters have historically toppled orders and remain a critical factor.
- Technological leaps raise living standards but also introduce new risks including their use as war instruments.
- Gold remains a key safe store of wealth amid monetary uncertainty, with central banks and sovereign funds increasing holdings.
- Dalio warns of potential capital wars, especially between major powers like the US and China, driven by trade and capital imbalances.
Full Transcript — Download SRT & Markdown
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domestic political orders changing.
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geopolitical order changing.
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Gold is up about 65% from a year ago and down about 16% from its high.
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We are quite close to capital war.
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World order has changed.
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How that is done, to use Donald Trump's expression, is really who's got the cards.
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Would regime change in Iran make this region more investable?
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Yes.
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Monetary, geopolitical order breaking down': Ray Dalio warns world 'on the brink' of capital war.
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Ray, welcome again to Dubai. It's great to see you, sir.
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Thank you. It's always great to be here.
Speaker B
So let's talk about what's happening in the markets right now because you have been a macro investor for the better part of 50 years, Ray. When you look at the market gyrations right now, what are the five forces that are ultimately driving what's happening at the moment?
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Because we've seen a lot of volatility through January and the start of February.
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Well, thank you for the question.
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Yes, and the five forces.
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I'll I'll just
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Ray Dalio
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CIO, Bridgewater Associates
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One of the things that I learned back in 1971 was that things that surprised me quite often were things that never happened in my lifetime, but happened many times before. Back then I was a clerk on the floor of the New York Stock Exchange. I just graduated college and I was about to go to graduate school. And 1971, Richard Nixon on August 15th got on the television and said that we're not going to give you your gold.
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Defaulted on the promise to be able to turn money cash money in for gold.
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And I walked on the floor of the stock exchange the next day thinking that this was going to be a great crisis.
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And the stock market went up, I thought it was going to go down.
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And I studied in history, um, the valuations.
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That's the first I was through.
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And I found that in 1933, Roosevelt did the exact same thing for the exact same reason.
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I understood the mechanics.
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And I studied the 30s.
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And because of that, I was able and Bridgewater was able to anticipate the 2008 financial crisis, the European debt crisis and so on.
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And so I studied history and I just recently about five years ago studied the last 500 years of the patterns of history.
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Particularly on reserve currencies breaking down.
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And I realized that there is a great cycle and five big forces.
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And those five big forces are first, uh, the money, credit, debt,
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um, economic machine.
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That there's a certain way of that machine operating.
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And I'll explain it in a second.
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Um, the second force is related to the economics.
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Is the internal, um, political force in which, uh, when there's left and the right
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emerges in these periods of great conflict.
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In the first,
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um, just to make it very simple.
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What the, there's a debt cycle.
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There's a big debt cycle.
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And what the way it works is it's the same for uh, countries as it is for individuals.
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Except countries can print the money.
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If if your debt rises relative to your incomes and your debt service payments begin to squeeze your spending.
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You have an a problem.
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And if you have a lot of debt that to sell, one man's debts are another man's assets.
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And you have to sell that and if there's too much that they own.
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And you're selling a lot.
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There's a supply demand problem.
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And that's happened repeatedly and that's what's going on now.
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In a way that didn't happen except for the 30s.
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So, um, we also have then the political.
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When the left and the right, um, what there are large wealth and values gaps.
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And so they become irreconcilable differences.
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You get populism of the left and populism of the right.
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And so the economic cycle is very much tied to the political cycles.
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That's the second force.
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The geopolitical cycle.
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In other words,
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by the way, all these cycles started really in 1945.
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The geopolitical cycle.
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There's a world order.
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In other words, the world system.
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And that was dominated by the United States and its way of operating that was a multilateral system.
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The idea of the United Nations and the World Trade Organization and the World Health Organization and the World Court and all of that multilateral.
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Which is breaking down now and to become more of a unilateral power.
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Um, type of world order.
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These three orders, all orders.
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The monetary order, the political order within a country, the geopolitical order through time have gone through these cycles.
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And then roughly about once a lifetime or so.
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They break down for these reasons.
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And then number four is acts of nature.
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Droughts, floods and pandemics have killed more people than wars and toppled more orders.
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And then number five force is always through history, technology.
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Big technology leaps which have the effect of raising living standards, but also being used as weapons for war.
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So there is that big cycle.
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In my opinion, as we're looking at and many people are very surprised at what's going on.
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If this is more like watching a movie.
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Happen over and over again.
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You know, history does rhyme.
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And so what we're seeing is the monetary order changing, breaking down in a certain way.
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We're seeing the domestic political orders changing.
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Certainly.
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And we're seeing the geopolitical order changing.
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In a very important ways.
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And then, um, of course, technology will have and is having a tremendous effect.
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Ray, what would you say is the safest store of wealth today?
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We've seen huge volatility in gold, a significant run up followed by an historic sell off.
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Can you offer your perspective on what's happening with gold and silver right now?
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The money is supposed to be a medium of exchange and a store hold of wealth.
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And right now there's a questioning of how it will be a store hold of wealth.
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Due to and that questioning.
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Uh, is leading particularly to the accumulation of gold, particularly by central banks.
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Although it's gone to sovereign wealth funds.
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And it's gone to beyond that.
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Because the question is what is money?
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What is a store hold of wanting?
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In 1971, as I described, uh, there was the breakdown of our monetary system.
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Where there was a link to gold.
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And then we created a the world created a fiat monetary system.
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In other words, where there it's easy to print money.
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And as a result of that, we have a lot of debt and one man's debts are another man's assets.
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And so there is the dynamic that I was describing.
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And so the question is, um, from that supply demand, there's a lot of risk associated with that.
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But also historically, when there's great conflicts, there are worries that
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they can, those capital wars can develop.
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In other words, in history, in like World War II in Japan, prior to the war.
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Um, the United States and Japan had a contentious relationship.
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And the United States sanctioned Japan, meaning they didn't pay their debts.
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One could imagine an analogous situation, um, here.
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Also, in this world today, I'm saying between China and the United States.
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Or even it's been conjectured, um, and talked about by leaders in in different countries.
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Um, about uh, US and European dependency.
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Because the the reverse of a trade deficit.
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And we hear a lot about trade wars.
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Is capital.
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That there's a capital.
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Um, imbalance and capital could be used as a war.
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So the question really is what is a safe store hold of wealth?
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So naturally, um, gold has been the most used.
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And prior to 1971.
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Was the choice.
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And it has unique characteristics.
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Because it can be, um, most others can be controlled.
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Or, um, uh, would not be used by central banks.
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So I think when you say what is money, um, in reserve currencies.
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Gold is the second largest reserve currencies.
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I think if people were to make those who are running policies and and so on were to say.
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Uh, they would say gold is the, um,
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safest, um, money in this kind of an environment.
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Still the safest.
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Yeah, oh, it doesn't change by the day.
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You know.
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Gold is up about 65% from a year ago.
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And down about 16% from its high.
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And, um, and I think people make the mistake of thinking, uh, is it going to go up and down?
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And should I buy it?
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And instead, not whether it's individuals, but even more importantly, perhaps central banks or governments or sovereign wealth funds.
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Should say, um, uh, what percentage of my financial assets?
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What percentage of my portfolio?
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Should I have in gold?
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And think about that percentage.
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And then as the price goes up and down, if it goes up too much, you sell out to get back to that number.
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Goes down too much.
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But to keep a certain percentage.
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Because it's a very effective diversifier to other parts of the portfolio.
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I think that it's best to say.
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If you didn't know what markets were going to do, what should my allocation be to different markets?
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And because, um, gold is a diversifier, um, in other words, when the bad times come along.
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It does uniquely well.
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And when the good times are prosperous, it less so.
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Um, it's an effective diversifier.
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So I I would I would say that perspective.
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I'd say the most important thing is to have a well diversified portfolio.
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So I'm not saying run out and, uh, you know, buy gold and because the market's going to be hot.
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But more to think strategically about what is the right mix of assets to own whether you are an individual or a central bank or a country or a sovereign wealth fund.
Speaker B
Ray, you mentioned capital war.
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Do you believe that we are on the cusp of a capital war?
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So much of the market focus right now is on the president's trade and tariff agenda.
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We often talk about the implications of the trade war that we see unfolding.
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What about a capital war?
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Uh, we are on the brink.
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That means not in, but it means we are quite close to.
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And it would be very easy to go over the brink into a capital war.
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Um,
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and and because there are mutual fears.
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Um, for example, if you were to take, um, the conflict even over Greenland related to Europeans.
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Um, and the United States.
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Um, there could be a fear, um, that, uh,
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European holders of US denominated assets could have that, um,
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that they could be sanctioned.
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In a sense.
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Uh, they might have a fear.
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In one way or another.
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And there could be a reciprocal fear on the part of the United States.
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That it could be, um, not get the capital or not get the buy.
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This is very much similar by the way to the UK, um, during the Suez crisis.
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Um,
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um, it and it's the three main forces that I'd I'd described to create an environment of of civility and vibrance.
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Uh, in which people can have the freedom to be creative together.
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Um, I my my, you know, my son.
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I have a son and and a daughter-in-law, three grandchildren.
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They go to school here.
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The schools are good.
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If so it's, um, say out of the wars, you know, just, uh, keep doing what you're doing.
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We really appreciate your insights.
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We have about a minute left, so I wanted to get this question in.
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Because we are, of course, here at the World Government Summit.
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Ray, what would you say is the biggest challenge or risk facing governments in this part of the world through 2026 and beyond?
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I would say, uh, just keep doing what you're doing.
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Um, uh, you know, I've been coming to Abu Dhabi since, uh,
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for 32 years.
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And I saw how it was raised by Sheikh Zayed.
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And I've seen Dubai.
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And, um, um, it and it's the three main forces that I'd I described.
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To create an environment of of civility and vibrance in which people can have the freedom to be creative together.
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Um,
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I my my, you know, my son.
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I have a son and and a daughter-in-law, three grandchildren.
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They go to school here.
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The schools are good.
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If so it's, um, stay out of the wars, you know, just, uh, keep doing what you're doing.
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We'll leave it on that positive note.
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Ladies and gentlemen, congratulations on another fabulous event.
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And please thank Mr. Ray Dalio.
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Thank you.
Topics:Ray Daliomonetary ordergeopolitical ordercapital wardebt cyclegoldfiat currencypolitical polarizationglobal marketseconomic cycles
