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The Great Decline of the Dollar Standard

Dear Reader,

A major move in the currency markets is here, and it may be one of the biggest opportunism any of us will ever see in our lives. These types of major shifts happen every few hundred years, and we’re on the edge of one happening right now.

While there’s no shortage of commentators painting bleak scenarios for the future of America as a world power, it’s not often that we hear such a dark assessment from a figure as prominent as Bridgewater founder and the world’s largest hedge fund manager, Ray Dalio. And while he doesn’t say it directly, Dalio makes it quite evident that he envisions a precipitous end to the hegemony of the U.S. and the dollar.

The implication provided by a recent LinkedIn blog posting by Dalio is that China will overtake the United States as the world’s dominant superpower in multiple areas: “1) innovation & competitiveness, 2) domestic output, 3) share of world trade, 4) financial-center size and power, 5) military strength, and 6) reserve-currency status.”

Dalio waxes philosophical – almost wistful – in his eulogy for the American empire and his suggestion that China will (sooner than most of us expect) reclaim its place as the world’s most powerful nation. Evidently, given the current trajectories, it won’t be long before the U.S. and China switch positions in the rankings:

In explication of the foregoing graph, Dalio notes that “China was either the number one or number two most powerful country from 1500 to at around 1800 when it went into relative decline that continued until around 40 years ago.” While Dalio doesn’t provide an explanation for that decline, he does explain China’s current ascent as “largely the result of China’s powerful culture and its reforms.”

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Dalio is clearly looking far beyond short-term trade negotiations in his assessment; centuries of history are his guide to the future of this macro-scale game of “king of the hill.” Thus, Dalio asserts, “while trade deals can be made, attempts to change the top-down government management of most/all aspects of the system pursuit of making China as great as it can be—won’t work.”

In downplaying current issues like the trade war, Dalio seems to be issuing a warning to younger generations; in particular, he wants our current and future voters and policymakers to know that “China has a culture and system that has worked well for it for a long time so it shouldn’t be expected to change much” and that “China is a place we need to continue to evolve with and invest in.”

Through words and charts, Dalio strongly implies that China is on the cusp of a new dynasty with its concomitant economic and military strength:

Interestingly, Dalio quotes Chinese President Xi Jinping from a recent speech: “We will reform the things that should be reformed and not reform the things that shouldn’t be reformed.” But “reform” is the understatement of the century, as the implications for the U.S., the dollar, and the American way of life are at stake here.

You might agree with him or not, but suffice it to say that Ray Dalio’s a pretty smart guy and he’s done more than a modicum of research on this topic. And in a turbulent and ever-changing world, Dalio’s words, albeit unsettling, hold more weight now than ever.

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Best Regards,

Daniel Ameduri
President, FutureMoneyTrends.com

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