Ray Dalio: The United States is on the brink of civil war! A comprehensive analysis of the breakdown of order behind the Los Angeles riots.

Ray Dario, founder of Bridgewater Fund (Ray Dalio) earlier X published a long article titled "Civil War?" discussing the collapse of order revealed in the recent Los Angeles riots. (Synopsis: Trump ordered the National Militia to "drive California to protest", the governor was furious: the president illegally seized local military power) (Background supplement: Trump declared a "national emergency" tariffs to wash Asian stocks in blood, the Nikkei index plunged 3%, South Korea held an emergency meeting: Mass protests and unrest erupted in Los Angeles over the weekend after U.S. Immigration and Customs Enforcement (ICE) raided various locations in Los Angeles to arrest undocumented migrants. The campaign, which began on June 6, quickly sparked local discontent, with hundreds taking to the streets to protest against federal immigration policies and law enforcement. As of the 10th, national militias have been deployed on the streets of Los Angeles, and calm has returned to some areas, but the tension has not been completely lifted. The protests have also spread to San Francisco and other places, and the number of arrests has continued to increase, and all sectors of society are highly concerned about the confrontation between the federal and local governments. In response to this situation, Dalio, the founder of Bridgewater Fund, published an article called "Civil War?" earlier in X, revealing that the American order is disintegrating, discussing understanding recent events in a broader context, and observing what is happening now, like watching a movie that I have seen many times. My perspective comes from my more than 50 years of experience as a global macro investor and my research into the past 500 years of history. In my 2021 book, Principles: Coping with a Changing World Order, I describe a template that can be used to compare with actual developments to help understand how the world order has evolved. I also explain the eternal and universal causality in the great cycles that produce changes in the world order. That template leads me to believe that the monetary order, the domestic political order, and the international geopolitical order are likely to collapse at the same time. Unfortunately, the development of events is coinciding with this template. The purpose of this note is to help you put recent developments in the context of my template, in particular that it explains the collapse of the domestic order (which I describe as some form of "civil war", although this does not necessarily mean that people kill each other). Chapter 5 describes "the great cycle of internal order and chaos." It unfolds through a large cycle that goes through 6 stages, each with its own unique characteristics. Given the government's debt problem and now that the uprising in Los Angeles is being suppressed by President Trump sending the National Guard, I think this is a good time to remind you of this template. If you are interested in reviewing the entire cycle and all 6 of its phases, you should read Chapter 5 in its entirety. It is not exhaustive here, but since I believe that we are now in the fifth phase of the cycle, that is, the pre-civil war stage, I will only share my description of this stage and the sixth phase (the civil war phase). I believe this is a good guide to what may happen in the future. As always, I welcome any questions or comments. Stage 5: When finances are bad and conflict is raging In large cycles, the most important influence comes from debt, money, and economic activity. Since I have covered the cycle in its entirety in Chapters III and IV, I will not repeat it here. But to understand the fifth stage, you need to know that it comes after the third (peace and prosperity, favorable debt and credit conditions) and the fourth (excesses and decadence begin to worsen the situation). This process culminates in the most difficult and painful sixth phase – when entities run out of money, often in the form of a revolution or civil war, a terrible conflict arises. The fifth stage is the period when the interclass tensions that accompanied the deterioration of the financial situation reach their peak. How different leaders, policymakers, and groups of people respond to conflict has a significant impact on whether countries will undergo the necessary changes peacefully or violently. You can now see signs of this happening in many countries. Countries that are in a good financial position (i.e. income is greater than expenditure and assets are greater than liabilities) are in relatively good shape. Countries that are in a poor financial position are in a relatively poor state. They need financial assistance from other countries. The problem is that there are far more countries in poor shape than countries in good shape. You can also see that these different conditions are the main drivers of disparity in most aspects of these countries, states, cities, companies, and people—for example, their education, healthcare, infrastructure, and well-being. You can also observe huge cultural differences in how countries respond to stressful situations, with some countries dealing more harmoniously while others are more inclined to struggle. Since Phase V is such a critical stage in the internal cycle, and because many countries, most importantly the United States, are now at this stage, I will take some time to elaborate on the causality that comes into play during this period, as well as the key indicators to look at when looking at their progress. Then I will talk more specifically about the situation of the United States. Traditional toxic combinations Traditional toxic combinations that trigger large internal conflicts include: 1) the financial poor financial situation of the country and the people in the country (or state or city) (e.g., with large debts and non-debt obligations); 2) there is a large gap in income, wealth and values within the entity; and 3) a serious negative economic shock. This convergence often leads to chaos, conflict, and sometimes even civil war. Economic shocks can be caused by a variety of causes, including the bursting of financial bubbles, natural disasters (such as epidemics, droughts and floods), and wars. It created a financial stress test. The financial position that exists at the time of the stress test, measured in terms of income versus expenses and assets versus liabilities, is a buffer. The size of the gap in income, wealth, and values is the degree of vulnerability of the system. When financial problems occur, they usually hit the private sector first and then the public sector. Because the government will never allow the financial problems of the private sector to bring down the entire system, the financial situation of the government is of the utmost importance. A collapse occurs when the government runs out of purchasing power. But on the way to collapse, there will be many struggles for money and political power. By studying more than 50 civil wars and revolutions, it became clear to me that the single most reliable leading indicator of a civil war or revolution is government fiscal bankruptcy coupled with a huge gap between rich and poor. That's because when the government lacks the financial resources, it can't financially bail out the private sector entities that the government needs to bail out to keep the system running (as most U.S.-led governments did at the end of 2008), and it can't buy what it needs or pay people to do what it needs them to do. It lost power. A classic sign of being in Phase Five, and one of the triggers for Stage Six—a leading indicator of loss of borrowing and spending capacity—is that governments run large deficits, causing more debt to be sold than buyers other than the government's own central bank are willing to buy. This leading indicator lights up when governments that can't print money have to raise taxes and cut spending, or when those that can print money print money in large quantities and buy large amounts of government debt. More specifically, when the government runs out of money (due to huge deficits, massive debt, and inability to access enough credit), it has limited options. It either raises taxes and cuts spending sharply, or prints a lot of money, devaluing its currency. Governments that have the option to print money always do this because it's a much less painful route, but it causes investors to dump the money and debt that are being printed. Governments that can't print money have to raise taxes and cut spending, which encourages the rich to flee the country (or state or city) because paying more taxes and losing services is intolerable. If these entities that cannot print money are among their electorate ...