Thoughts on <The Changing World Order>

Opening

I first encountered Ray Dalio's The Changing World Order through an animated video on YouTube a few years ago. I was amazed that 500 years of history could be condensed so easily and engagingly, and felt enormous respect for the author who could produce such content. As my interest — and honestly, worry — about international affairs, exchange rates, and economic conditions has grown recently, I decided I needed to read the book.

About the Book

I prefer to start with a book's table of contents. The TOC gives you an immediate sense of what the book is most fundamentally trying to say — and the clearer the table of contents, the more I tend to gain from reading. This book's structure is:

Part 1: How the World Works

Part 2: How the World Has Worked Over the Past 500 Years

• 1600s: The Rise and Decline of the Dutch Empire and the Guilder
• 1800s: The Rise and Decline of the British Empire and the Pound
• 1900s: The Rise and Decline of America and the Dollar
• 2000s: The Rise of China and the Yuan
• Present: The US-China Relationship and War

Part 3: The Future

The story of the Dutch Empire in the 1600s and the European great powers of that era was new and fascinating to me. The Netherlands is smaller than Korea in population and land area — yet it was a great power. That suggests the competitive edge that allows a country to seize hegemony doesn't come from size alone.

The most important message Dalio wants to convey is the pattern that has driven changes in world order. He identifies and explains the five factors that determine the Big Cycle (new order → rise → peak → decline → new order). The five determinants and the most useful messages I drew from each:

1. Innovation
2. Debt-money-capital market cycle
   • Currency and credit exert the greatest influence on the rise and fall of wealth and power.
   • Holding the reserve currency confers enormous borrowing and spending capacity, and a significant advantage in international trade.
   • Historically, leaders have incurred debt whose repayment periods expired long after their rule ended — passing the burden to the next leader.
   • Long-term debt cycle:
     1. Little or no debt; currency is "hard money" (gold or other precious metals)
     2. Discontent with hard money leads to the emergence of banknotes or paper currency
     3. Debt grows
     4. Debt crisis, default, currency devaluation — money supply increases and breaks from hard money
     5. Fiat currency is issued; currency value ultimately declines (all currencies eventually lose their value and disappear)
     6. Return to hard money
   • Four tools policymakers use to reduce the burden of interest relative to income:
     1. Austerity (spending cuts) → painful, causes deflation
     2. Debt defaults and restructuring → painful, causes deflation
     3. Redistributing money and credit from the wealthy to the less well-off (e.g., tax increases) → politically difficult but more bearable than options 1 and 2
     4. Printing money and devaluation → the most convenient tool (it's unclear whose wealth is being transferred, and in most cases asset values rise, making people feel wealthier)
3. Internal order/disorder cycle
   • Each phase calls for a different type of leader.
   • Power-consolidating leader → engineering-type leader → inspiring prophet → well-trained leader with the right mindset → strong arbitrator → general that people want to follow
4. External order/disorder cycle
   • Eight determinants of a nation's wealth and power:
     1. Education
     2. Competitiveness
     3. Innovation and technology
     4. Economic output
     5. Share of global trade
     6. Military strength
     7. Influence as a financial center
     8. Reserve currency status
   • Because the U.S. holds reserve currency status, Americans have been able to borrow excessively from the rest of the world — but this has simultaneously left the U.S. deeply indebted and financially vulnerable.
   • Because the U.S. has progressively monetized its excessive debt and paid effectively negative real interest rates to creditor nations, those creditor nations holding U.S. bonds have also become vulnerable.
   • Traditionally, the most dangerous element in trade/economic wars arises when one country cuts off another's essential imports.
5. Acts of nature

The pattern is like a fractal — zoom in or out and the same principles apply. That's what makes it so useful. The fact that patterns in managing personal wealth (micro) and global affairs (macro) are so similar was a meaningful lesson for me. In particular, the insight that building wealth means improving productivity — not creating currency or assets — was a great lesson. It motivated me to approach "wealth" through this lens and ask how much my personal productivity is actually growing.

• Wealth = Purchasing Power: Don't confuse wealth with currency or credit. Currency and credit change in value. You can buy wealth with money and credit, but simply having more money and credit doesn't mean more wealth.
• Creating Wealth = Increasing Productivity: In the long run, your wealth and purchasing power are proportional to your productivity.
• Wealth = Power: Wealth and power are mutually reinforcing.
• Declining Wealth = Declining Power: Someone who earns a little less but runs a surplus will succeed over someone who earns more but runs a deficit. History shows that any individual, organization, nation, or empire that spends more than it earns experiences misery and chaos.
• Real assets ≠ Financial assets: Real assets are things you buy, own, and use — they have intrinsic value. Financial assets consist of financial instruments that generate ongoing returns and can eventually be sold to purchase real assets. Financial assets have no intrinsic value of their own.
• To succeed in markets and in life, bet on the uptrend created by evolution that leads to productivity gains — but don't bet so aggressively that the cycles and collisions you encounter along the way knock you out.
• The most important thing in the game of life is not to lose catastrophically. Diversify. Bet on multiple attractive but uncorrelated things simultaneously; you can reduce risk by up to 80% without reducing potential gains at all.

Closing

At the end of the book, the author shares metrics for diagnosing the US-China relationship and national financial health, hoping readers will build their own frameworks. Watching Dalio make decisions through patterns and data is personally very inspiring. It makes me realize the importance of having your own independent metrics for making good decisions — not just about economics, but across many areas of life.

Finally: I highly recommend this book to anyone who wants to see the world from a perspective that spans beyond a century. It also gives you the power to interpret the many changes ahead more independently — something that left me feeling genuinely proud after finishing it. The book gives you a lot to think about when you apply its framework to your own country and current international affairs. Highly recommended for anyone with an interest or stake in these topics.