Ray Dalio: How to Survive the Coming Civil War and Plot to Use Debt and CBDCs to Enslave You

In this podcast episode, Ray Dalio discusses the long-term cycles that shape civilizations, focusing on the United States and the global order. He explains the dynamics of monetary, political, and geopolitical systems and how their stresses can lead to societal breakdowns. Dalio delves into the role of debt crises and central bank digital currencies (CBDCs) as tools that could potentially concentrate control, while also offering practical financial advice amidst these challenges. The conversation touches on historical parallels, the limitations of current policies, and what individuals and nations can do to prepare for an uncertain future.

The Cycle of Civilizations and Orders

Dalio outlines a framework of interconnected orders governing societies: monetary, political, and geopolitical. The monetary order starts with the creation and servicing of debt, which fuels productivity but also risks becoming unsustainable when debt payments outstrip incomes, squeezing out other spending. The political order reflects domestic social dynamics, particularly the polarization that emerges when wealth and values diverge sharply, often leading from democratic discord into authoritarianism historically seen in the 1930s and earlier. The geopolitical order governs how nations interact, with post-World War II establishing a multilateral system through institutions like the United Nations and World Trade Organization. Each order survives only as long as it meets the interests of the most powerful; otherwise, it breaks down. Dalio notes that all these orders are currently under strain, approaching a potential breakdown.

The Role of Nature and Technology

Beyond human systems, Dalio emphasizes that acts of nature—pandemics, droughts, floods—have repeatedly had profound impacts, often more devastating than wars. Additionally, technological innovation not only drives economic prosperity but also determines the outcomes of geopolitical conflicts. Control over emerging technologies becomes a battlefield for supremacy, affecting which nations ascend or decline.

Political Polarization and the Drift Toward Autocracy

Focusing on the political order, Dalio stresses that deep societal divisions and the inability to compromise can push democracies toward autocratic outcomes, a pattern repeated throughout history from ancient Rome to modern times. He highlights rising tribalism, where people retreat into opposing camps defined by stereotypes and a loss of empathy, fueling conflict. When legitimacy of institutions wanes—such as doubts about the fairness of the Supreme Court or legal systems—the social contract frays, raising the risk of violent conflict, internal fights for control, or mass migration to safer locales.

The Current State of the United States and the West

Dalio situates the U.S. within a six-stage long-term cycle, placing it in stage five—on the brink of systemic breakdown but not yet collapsed. Various indicators across education, military strength, and financial metrics confirm America remains the dominant power, but one in relative decline facing severe internal and external pressures. He explains the monetary side of the crisis, focusing on the supply-and-demand imbalance for the U.S. dollar as the world's reserve currency. Foreign nations increasingly hesitate to hold dollar-denominated debt due to geopolitical risks, sanctions, and fears of seizure, prompting shifts toward hard assets like gold or alternative reserves.

Debt, Monetary Policy, and the Limits of Central Banking

Dalio explains how large budget deficits create structural problems. When foreign demand for treasury debt weakens, the central bank steps in by printing money to buy government bonds, leading to currency depreciation and inflationary pressures. This cycle has repeated since the U.S. went off the gold standard in 1971, first evident with Nixon's suspension of dollar convertibility to gold. While this approach has sustained the system for decades, signs of strain—rising interest rates, inflation, and monetary easing—indicate decreasing effectiveness. The result is a challenging tradeoff between fueling growth, controlling inflation, and maintaining confidence in the currency.

The Importance and Misunderstanding of Gold

Dalio advocates viewing gold not as a speculative metal but as a form of money, a reliable store of wealth unlike fiat currencies. He notes that most people misunderstand gold's role, seeing only price fluctuations rather than its function as a diversifier and safe haven during times of financial stress. Dalio recommends holding gold as part of a diversified portfolio, typically 5–15%, to protect against currency devaluation and systemic shocks.

Wealth, Taxes, and Economic Inequality

Dalio distinguishes between wealth and money, pointing out that wealth includes illiquid assets which must be converted into money to pay expenses or taxes. The expanding wealth gap and calls for wealth taxes raise complex economic and political challenges. Taxing wealth forces sales of assets, potentially crashing markets and reducing overall wealth values. Dalio warns that without careful management, efforts to redistribute wealth can destabilize financial markets and trigger capital flight, as seen in migration patterns from high-tax regions like California to states with more favorable economic environments.

Migration and the Search for Stability

People are moving toward regions offering civility, opportunity, and lower taxes, such as Texas, Florida, and parts of the Middle East. This internal and international migration drains tax bases from wealthier or more troubled areas, exacerbating fiscal shortfalls and intensifying political conflicts over resource allocation. The hollowing out of once-thriving regions deepens national divides.

The Fragility of Democracy and the Risk of Civil Conflict

Dalio expresses hope for the survival of representative democracy in the U.S. yet acknowledges the significant risks from polarization and growing willingness among segments of the population to resort to violence. Only a small minority advocating force is sufficient to destabilize society. He urges vigilance and worry as a catalyst for prevention, underscoring that civil wars are catastrophic and deeply regretted events historically. The increasing tribalism and erosion of shared civic values raise fears of violent fragmentation.

The Power Dynamics of Money Supply and Central Bank Digital Currencies

Central banks control the money supply, acting in coordination with fiscal policy. Recent large deficits combined with monetary easing have resulted in widespread money creation financed by central bank bond purchases, driving inflation and currency debasement. Dalio discusses the emergence of central bank digital currencies (CBDCs), acknowledging their convenience and efficiency but warning of the significant loss of privacy and government control inherent in their design. With full transaction traceability, governments can enforce taxes, impose sanctions, or restrict access instantly, making financial surveillance pervasive and raising the specter of potential coercion. Despite these concerns, Dalio believes CBDCs will grow but may not become universally dominant soon.

Preparing for an Uncertain Future

Dalio advises individuals to focus on sound financial habits: earning more than spending, saving, and diversifying portfolios, including holding gold. He stresses the importance of following opportunities geographically, seeking regions with stability and growth potential. Above all, raising well-educated and civil children who can contribute productively to society is paramount. At the national level, Dalio calls for disciplined fiscal policies aiming for sustainable deficits around 3% of GDP, balancing tax increases and spending cuts. Yet, he acknowledges political gridlock makes such measures unlikely, leaving the nation relying on growth and innovation to "grow out" of debt problems, a bet he views as improbable over the short to medium term.

The Global Shift in Reserve Currency Status and China's Role

Reflecting on recent calls by Chinese leadership to elevate the yuan as a global reserve currency, Dalio expresses skepticism. While China may increase the yuan's use as a medium of exchange in international trade, trust issues rooted in capital controls, lack of private property rights, and opacity limit its viability as a store of wealth. The global financial system remains dependent on trusted, liquid assets, and gold continues to be the ultimate non-government issued store of value, especially as fiat currencies face growing pressures.

Civil War Risk and the Role of Concern

Concluding the discussion on internal conflicts, Dalio emphasizes the necessity of concern and awareness. Worrying about potential civil unrest motivates preventative action, whereas complacency risks neglecting the warning signs that society teeters on the edge of violent conflict. History shows that those confident about wars are often detached by the distance from past violence, leading to underestimation of risks. Dalio's perspective urges attentive stewardship to maintain civility and preserve democratic institutions before irreparable damage occurs.