Ray Dalio on AI, Job Loss & the Future of the Economy | EP #148

Our country is going to go broke faster because of AI and robotics. That is likely to happen. There’s going to be great disruption.

I can vividly feel the energy in the biotech world and the AI world.

Technology and AI are going to be a force, and it’s a tailwind. The question is: Is the tailwind greater than the headwind?

Listen, I’m the guy who doesn’t think the glass is half full—the glass is overflowing. I’m Mr. Optimism and abundance. But reading your book has got me thinking a lot. As we take 1, 2, 3, 4, 5 years, do you think you’re not going to have an economic downturn? Do you think you’re not going to have a bear market?

How do you think about China? We are at war with China, and you cannot lose the war.

Ray, good evening. You’re on the other side of the planet. I’m in Santa Monica, and you’re in Abu Dhabi right now. Is that correct?

Yes.

Welcome to Moonshots, my friend. It’s a pleasure to see you. I normally run into you in Riyadh, in the Emirates, and sometimes in New York, and I have to say I’ve been looking forward to this conversation.

I think the work that you have been doing recently, and writing about How Countries Go Broke, will be a fascinating discussion, really on the back of the changing world order. As individuals and entrepreneurs who are focusing on AI, robotics, longevity, and the future, a lot of us want to have a stable world in which to build our dreams. I think it’s important for people to understand the cycles that humanity and countries go through, to help them get a sense of where things are going. No one is better than you.

I don’t know about that, but I’ll do my best.

Let’s jump in. In particular, you’ve charted what you describe as the 5 major forces driving the health and wealth of nations. Could you give us an overview of those?

I’ll also touch on how I came by them. I’m a global macro investor, and I’ve been one for over 50 years. That’s taken me to different countries and allowed me to see how the systems work. I’m also very much a systems-mechanic person—a cause-and-effect, how-does-the-machine-work kind of person.

What I learned through my experiences is that sometimes, when I was really surprised, I was surprised because the things that happened to me didn’t happen in my lifetime, but they had happened in history. About 5 or 6 years ago, there were 3 things that hadn’t happened in our lifetimes.

Let me go back and find the cycles of rises and declines of reserve currencies, countries, and empires. The first 3 are the ones I knew about initially, and then I discovered—or realized—the other 2.

The first was the debt-money-economic cycle. We know what that’s like. You have a recession, inflation is down, and they put credit in. Credit is buying power. People buy things, things go up, financial markets go up, and everything goes up. You get to limited capacity, inflation rises, and they raise interest rates.

We’ve been through 13 of those cycles—we’re in the 13th—but there’s also a big, long-term debt cycle that takes place over 80 years, give or take. There are about 30 years where debt rises relative to incomes, and then there’s a limitation to that. We’ll get into that in a minute.

The second cycle, which very much goes with that, is the political, or internal order-disorder, cycle. When you go through that cycle, larger wealth and values gaps increasingly create greater and greater conflicts: the left and the right, populism of the left, populism of the right, and a fight between the 2.

Is that typically also an 80-year cycle?

They coincide. They don’t necessarily have to, but they are usually together. For example, this cycle—the last cycle—began with wars, and wars are what ends the cycle. World War II was accompanied by many breakdowns of domestic orders and new orders and systems that came into power.

Sometimes they were total revolutions. Sometimes they did not break down. In the case of the United States and the United Kingdom, we didn’t have a new domestic order, but there was a lot of internal fighting, and we came through it. In most other countries, there was a total breakdown of the order, and new orders came about.

At some point, I want to get into how tied this is to human lifespan.

There is an important element that’s tied to the human lifespan, because these things typically only happen once in a lifetime. We don’t learn the lessons about war and those things. It’s something like the idea of 3 generations to rags to riches—the “rags to riches” kind of thing.

It is definitely the case, by all measures, that we ask, “Why don’t we learn?” Well, we never experienced it before.

I remember my parents. They were born during the Depression, or effectively at the tail end of it, and it changed the way they were wired.

That’s right. My dad, and almost everybody who came out of the Depression, wanted to save: “Turn the lights off, son. Eat that food.” The power of saving and security was very strong. He never could buy stocks.

If you looked at the yield, it was very interesting. The yield on stocks—the dividend and earnings yields—were both about twice the yield on bonds. From an investment point of view, stocks had to go down in order to provide the same total return. It made no sense, but that was their mindset. It reflected, “I don’t want to own those risky things. I want to save, work hard, and so on.” That’s part of the cycle.

So that’s the second: this internal order-disorder cycle. As you point out, all these parts of the cycle are related. That mentality affected how we saved and spent, and so on.

The third part of the big cycle is the international world order: Who is the dominant power?

You have a war, and then you come out of the war and say, “Who sets the rules?” The winner sets the rules. That is the new world order. The United States set the rules. That’s why the dollar is the reserve currency. That’s why the World Bank, the IMF, and the United Nations are all in the United States. That was the new world order.

We created an order—a type of system—in which there was collaboration. That was the idea, anyway.

When you have a rising power challenging an existing power, there’s no world court that you plead your case to, where they say, “Okay, you win, and we’re going to go by your rules.” There’s no international constitution. Might is right. Then you have to determine who has the might, and you have war.

That’s the third major force, tending to follow the same arc.

The fourth doesn’t have the same 80-year cycle, but it’s a big force—an even bigger force than the first 3, because it has killed more people and toppled more world and domestic orders. That is climate and acts of nature.

Droughts, floods, and pandemics have killed more people and toppled more world orders. Climate is certainly a big deal now.

When you speak about climate, most people think about the current climate crisis. You’re really talking about the long cycles of climate causing drought, starvation, and basically ending nations.

Yes. Then there’s number 5, which is human inventiveness in all of its various ways, particularly technology.

That inventiveness is an upward force. You don’t lose it. It builds on itself. It rises and builds on itself as an upward force, and it’s a great force now.

Then there are cycles like the business cycle and the political cycle: left, right, left. We had the left, and now we have the right. Now we have the left, and so on. These economic cycles are those cycles. Then there’s the big cycle, which is like debt relative to GDP and those kinds of things.

That’s visually how it looks to me. Almost everything that we talk about is one of those 5 forces. Whenever anybody asks me anything, we’ll go into one of those 5, and you can almost see where you are in the cycle. They all relate to one another. Tariffs relate to economics, which relates to geopolitics.

There’s a sixth force I didn’t mention, which is also very important: demographics, of course.

Yeah, we have a silver tsunami, an aging populace, and growing age demographics. I think the age demographics play a much bigger role today than they ever have, and they will going forward.

We have a silver tsunami, an aging populace, and growing—I mean, it’s interesting. The age demographics play a much bigger role today than they ever have, and they will going forward.

Yes.

I want to get into the 5 stages of the big debt cycle that you write about, but I want to dive into something that has been bothering me. I didn’t get a good night’s sleep thinking about this last night.

Our country is going to go broke faster because of AI and robotics. If I understand this correctly, the Federal Reserve’s mandate is basically to juggle jobs and inflation: provide maximum employment, stable prices, and moderate long-term interest rates. Traditionally, you lower interest rates, which boosts employment because companies can borrow cheaply, expand operations, and hire more workers. That’s been the game up until recently.

Now you have Optimus humanoid robots and Figure. The prediction right now is that we’ll have billions of them by the mid-2030s. Elon Musk’s prediction, when I interviewed him at FII in Riyadh, was 10 billion by 2040. Sam Altman tweeted yesterday that the o3-mini model and its Deep Research technology will start displacing single-digit percentages of white-collar workers right away.

I interviewed Marc Benioff on this podcast a couple of weeks ago, and he said, “With Salesforce’s new Agentforce technology, we’re 30% more productive and are hiring no new engineers.” The question becomes: As we march forward, if a company has access to lower interest rates, wouldn’t it just buy more robots and hire more AI agents, thereby reducing labor and creating this massive decoupling from what had been the process?

I think it is virtually certain—but even that’s debatable—that AI and robotics will replace a lot of people. We’ve been seeing a wealth impact from technology, in which there’s a small population that has unicorns. It’s the most wonderful world that we can possibly imagine being in.

We also have a population in the United States where 60% of the population has below a 6th-grade reading level and is pretty broke. That is likely to happen.

Then the question, for all of these things, is: How are we going to deal with each other? The number-one question on all 5 of these forces, and on demographics, is how you and I—and how we—deal with each other, so that we’re not just acting greedily in pursuit of our own self-interest.

You can have a great civil war or conflict if you don’t manage these social issues. Those social issues are difficult to manage because everybody has a polarity regarding them.

I’m going to go a step deeper. Traditionally, you would hire workers, who would get money in their pockets, start consuming, fuel demand, and pay down corporate and government debt. The challenge, again, coming from your recent work on how governments go broke, is that if workers aren’t seeing wage growth and aren’t getting jobs, who is driving consumption? How does that drive our economy? Is it going to accelerate your predictions about the challenges?

Technology advances are a 2-edged sword. The way I think about it, they’re going to raise productivity and raise output per man-hour.

Sure.

That’s a good thing. The power of that good thing means you don’t have to work as much, or you get more from the result. Then it becomes a question of what you do with the distribution of that result.

It becomes a question of how you deal with each other in response to these incredible disruptive effects.

I also want to say something. I think we all believe we’re optimizing for what those technologies get us. In other words, wouldn’t it be wonderful if our life expectancy rose and we became smarter? Who could argue against those things? Sometimes we lose sight of the fact that those may not even be the most important things in a world that’s in conflict.

I did a study of the well-being of 24 top countries using a lot of statistics. It’s available online. I measure different types of power: income, military power, education power, and so on. Then I measure happiness and health.

Past a certain basic level, there’s no correlation between income per capita and happiness or health.

I remember that number being around $70,000 for happiness.

It’s actually considerably less than that. I don’t know what it is, but Indonesia, for example, has a much happier population than the United States, despite having much lower per-capita income. In terms of health, it’s also much lower, but the population is happier.

I would have to go back and check exactly how, but it’s mostly above what is needed to be out of pain—to have the basics.

The United States, in terms of health, has a 5-year shorter life expectancy than Canada and other countries with comparable incomes—in other words, the developed countries.

If we think back in time, were our parents less happy or less well-off? Think about what happened during wars and other conflicts. It’s not just optimized by technology. We have to pay attention to these other things, too.

Part of the question becomes: Is there going to be a new type of social contract that has to be created?

I believe—and I write about this a lot—that technology is a force that turns whatever was scarce into abundance. We’ve created massive energy abundance and food abundance, to the point where obesity is an issue. We have an abundance of information and an abundance of entertainment. There’s very little that, if you pushed me, I couldn’t paint a picture of increasing abundance.

Even life—the number of things you can do per unit of time, the efficiency of how we spend our time—is increasing. There’s an abundance of almost everything.

But if people are unhappy and that turns us toward civil strife, then we have real issues.

I think we can agree that technology and AI are going to be a force and a tailwind. We also have to realize that the other 4 or 5 forces are big headwinds.

The question is: Is the tailwind greater than the headwind at the appropriate time?

We’re going to get into the debt problem. We’re going to come into budget season over the next several months, and if they don’t do something, we’re going to have a major debt problem. We’ll talk about that in a minute, but that’s a headwind.

Internal conflict is a headwind. External geopolitical conflict is a headwind. Climate is a headwind. Demographics are a headwind.

When I think of the miracles I’ve experienced, I remember when I used to make charts with a ruler, colored pencils, and graph paper. I remember when the calculator came along, when spreadsheets came along, and when computers came along.

When we think about digitalization, devices, and connectivity, they were pretty amazing over a 35-year period. Connectivity became instantaneous. It was revolutionary.

Now I think: What force will this AI revolution be as a multiple of the force we experienced from rulers and colored pencils, spreadsheets, and the ability to build models? That was one hell of a force.

When I look at the Industrial Revolution and these other periods, I think it’s going to be a bigger revolution. But when we actually ask what its magnitude will be, I’m unsure whether it will be 1.2, 1.25, or 1.5 times what the other one was.

When you look back on it, it may not look big when you’re in it. You imagine the future and think, “This is going to be extraordinary.” Then we have the headwinds, and we have a timing issue. That revolution better come on, and we better get there in time.

I think about what the 1920s were like. They had the most patents and the most innovation, and then we came to 1929 and the Great Depression. Quite often, the greatest innovations have also been matched by bubbles.

We cannot simply say that these innovations will quickly and in time create such a productivity miracle that the other forces don’t matter. Demographics matter. A lot of people are going to go from working to needing support, and they’re not going to be productive. I don’t know exactly how that works.

I’m impressed with AI, but I don’t know exactly how this will play out.

I had this conversation with Neil deGrasse Tyson, who said that every generation feels like it’s living through the most extraordinary period of technological and societal growth ever. It feels that way.

It does feel that way.

The things that are coming, Ray, are transformational. The question is whether this is unlike what came in the past in terms of the degree of transformation.

Let me give you what it was like for me. I computerized all my decision-making. Artificial intelligence makes the decisions. Data comes in, criteria are specified, orders get placed, analysis is done, and my decision-making is programmed.

In terms of markets, data comes in and actions happen. There are no people involved. It’s like one of those factories with just a few people looking after it, and everything happens automatically.

That came from the old way of thinking, which I think most people are still in: “I’m a smart guy, and I will make my decisions.”

We are still a long way from turning everything over to AI.

There is debate about that. The question is, what does “a long way” mean? Is it 3 years, 5 years, or 10 years?

I find it interesting that so many people are users of AI, but they don’t follow AI. If you ask it, “Tariffs came in. Should I do this, this, and this?” you get an answer. Then you ask, “What would you do?” and you get a lot of bullshit, because it still comes back to understanding cause-and-effect relationships.

You still have to understand the relationships. You have to say, “Explain how tariffs affect this, this, and the other thing. Explain it to me, and then tell me how you would run your company.”

We’re a long way from actually turning that decision-making over to AI—having the criteria and the cause-and-effect relationships fully understood. That’s even more true in the markets, because the markets are a zero-sum game.

I have to be better than the consensus to beat the markets. I can get the consensus knowledge, but how do I get better than that?

When we say, “I’m going to turn it over to AI,” I believe the idea is that it can be a partner and an associate. It can teach you and do wonderful things, but you need it as a partner. We’ll see where that goes.

Human relationships.

Sorry?

Human relationships.

Well, even the relationship between you and AI involves understanding the mechanics of how tariffs affect this, that, and the other thing. You still need to understand it.

I mean human emotional relationships.

Yes, but even the relationship between people involves understanding how the tariffs affect this, that, and the other thing, how you would run your company, and so on.

We’ll see. I don’t know. Anyway, that’s AI. We agree that it’s a super-plus for productivity, a super-divider in terms of who benefits and who doesn’t, and that it becomes a social question about how we deal with that.

We also shouldn’t assume that this is happening in an environment of international law. Laws are local. Laws exist within countries. Laws do not exist between countries. There’s competition between countries to win at all costs.

I don’t think AI is going to be regulated or controlled. We also have to look at it as a weapon, because it can be a very important weapon, too. We’ll get to the conversation about the United States and China, which I think is the dominant conversation in that realm right now.

Before we get there, I want to talk about the concept of abundance. I wrote a book 13 years ago called Abundance: The Future Is Better Than You Think.

The argument for increasing abundance—and my next book, The Age of Abundance, is coming out in 2026—is that access to food, water, energy, health care, education, and almost every other factor is accelerating through demonetization and democratization.

We’re on the verge of fusion, potentially. The Chinese recently held a fusion reaction for 18 minutes. You have Helion and many others looking at fusion by the turn of the decade. Solar is exploding onto the scene, and energy drives everything else.

When you think about abundance as a concept for America, Americans, and the world, how do you think about that? Is this a world of increasing abundance, or are there factors that will shut that down?

The factors that could shut it down are the factors that have shut it down before. They are conflict.

If you look at how it was shut down before the Industrial Revolution, or the great revolution of the 1920s, when there were more patents than at any other time, it was a combination of economics, war, and conflict.

But you showed that technology is a continuous force building on itself despite the up-and-down cycles.

The chart looks like this, and then this, and then this. If you look at life expectancy, it looks like that. If you look at GDP per capita, it looks like that. It’s an upward arc.

What you don’t see, ironically, when you look at all of these things and see the wiggles, is that the wiggles represent World War II. You hardly pay attention to it, but it mattered.

Wars typically last about 3 years, so you don’t stop the upward movement unless you destroy mankind. You won’t stop that. You still have the upward movement, and you build on it.

But that upward movement is slow. If you had a bust now, you could imagine how that would change allocations of money and how it would change innovation.

We’re in a position that might be somewhat analogous to 1998 or 1999. I’m digressing, but just to complete the thought: What happens is that assets become more and more expensive, and there’s a universal view that a particular company or technology is miraculous. They may be a great company and it may be a great technology, but the question is how much it costs and whether it’s expensive.

As an investor, you would often be much better off buying bad companies at good prices than good companies at bad prices.

When my mom starts telling me which stock to buy, or my Uber driver starts telling me about a company, you’re in trouble.

If you look at pricing, ownership, and so on, I’m not saying we’re there. It looks more like 1998. But you also have a situation where, if you have an interest-rate change, you can have expensive assets and rising interest rates, and then you can have what happened in 2000.

We get used to the idea that disruptors don’t get disrupted. Everybody thinks, “They all get disrupted, of course.” It was interesting when Jeff Bezos said on one of his earnings calls, “Amazon might not exist in 30 years.” It shocked people for him to say that.

Look at the Dow 30. Go back 30 years, or even 20 years. Many of those companies don’t exist anymore. The ones that are on top do exist, and that’s the nature of the evolutionary process.

I’m still impressed that Microsoft has done as well as it has for the last 40 or 50 years.

It’s crazy.

Let’s get into the big debt cycle and the 5 stages you break it down into. Again, the lens I’m coming at this from is that we have a lot of entrepreneurs building companies.

We just entered a new administration with a pro-technology, pro-M&A mindset and minimized regulation. I can vividly feel the energy in the biotech and AI worlds. People are building, building, building. Capital is beginning to flow again.

People aren’t looking at what’s likely to come in the next 2 to 5 years. They’re saying, “The time is good now. Borrow, build, go.”

What’s your advice to entrepreneurs right now, in the context of the 5 stages? Where do you think we are in the United States? What impact is Elon Musk having with DOGE? Can we hold off these debt cycles, or is it too far gone?

That’s a lot of questions, but let’s take them one at a time.

Before I do that, I want to emphasize that this is the draft of my book, and it’s free online so people can read about the cause-and-effect relationships. I’m 75 years old, and I’m at a stage in my life when I want to pass along things that are valuable. I’m not earning money, and that’s not my goal anymore.

I want to pass along everything I can. Everything is based on cause-and-effect relationships. There are mechanics to it, and if I give you less than I’m able to give you, I’m not giving you enough.

What’s amazing to me, because I’ve experienced it throughout my life, is that everyone pays attention to how they feel at the moment. They don’t see the changes, and the changes, cycles, and everything else are so important.

There are 2 classic characteristics of euphoria. The first is where we are in the economic cycle. There’s an economic cycle, and there always has been and always will be one.

We’re about 65% or 70% through the economic cycle we’re in, judging by measures that I won’t digress into, although I can if you want. The cycle will continue.

In the political cycle, we’re in the classic first-100-days honeymoon of a new administration. It’s a time of euphoria and a time when a new beginning starts.

We’re at an unusually good moment. If you look at it in a cyclical sense and ask what’s likely, our aspirations are high because we have capitalism, business, and free markets combined with technology to produce that. The United States is on top of the world, and we should be very optimistic.

But first of all, you’re not looking at pricing. If you look at the pricing of assets in the United States relative to other countries right now, it’s expected that other countries will improve relative to the United States.

There’s a hurdle rate. You always have to keep that in mind. It’s like a horse race: You have to bet on the outcome while keeping the handicap in mind.

If you take the cycle, I’ll bet that as we take 1, 2, 3, 4, or 5 years, we’re going to have an economic downturn. Do you think we’re not going to have a bear market? Do you think everybody is going to remain enthusiastic about how things are going and how the government is handling things? Do you think you’re not going to have any of those other problems?

The challenge of being an entrepreneur—especially a moonshot entrepreneur—is that you’ve got to be super optimistic even to get into the game. But people aren’t seeing the long-term writing on the wall.

How do you properly capitalize yourself? How do you protect against the downside? How do you avoid overburdening yourself with debt or growing too rapidly?

This is the message I want people to hear. I’m the guy who doesn’t think the glass is half full; the glass is overflowing. I’m Mr. Optimism and Mr. Abundance. But, as I said, reading your book has made me think a lot.

One of the great things about the United States and our system is that you can fail and start again.

That differentiates us from most of the world.

It does. Then you have to think: Whose money is failing, and how does that work? Are you being straight, upright, and honorable with people?

In this world, you’ve got to go for it. You want to go for it, and then you have to be straight, upright, honorable, and go for it. You can fail. Just don’t get permanently knocked out of the game.

There’s a great talk by Bill Gross—not the economist Bill Gross, but the Bill Gross from Idealab—about the single most important aspect of a successful company. It’s timing. It’s living long enough to live forever.

If you can live through the downturn and be there at the upturn, then you have a chance.

In my case, I never raised a dollar of debt or a dollar of equity. I built the largest hedge fund in the world, and it did very well. I’m not saying that’s the right thing to do, but the “don’t die” mantra was my mantra.

I would always ask, “Is my profitability X relative to how much I have in this way?” I constructed the finances so that the company couldn’t die. It could contract, but it couldn’t die.

I’m not sure that’s the smartest way. Sometimes it’s okay if you die, and people will understand it because of who you are. Invest in your character and your reputation. You can damage or kill your reputation, but if the company dies and you do it the right way, that’s allowed in our system.

Be of good character and good capability. That’s what matters.

Let’s get into the big debt cycle and the 5 stages. Give us an understanding of where we are in that process, if you would.

There are cycles. The short-term debt cycle, or business cycle, lasts years, and we know what that looks like. Then debt rises relative to income. Income is needed to service the debt.

The way I view it is that after a war, debts are basically written off. You start with very little debt.

My parents didn’t have much debt.

They didn’t have much debt, and they didn’t want to spend money or borrow money. In the early stage of the market cycle, it’s the sound-money stage.

The sound-money stage can be measured by asking: Does the debt create more income than is needed to pay it back? That’s basic. It’s a good use of capital. Everybody is happy. The lender gets paid back with interest, and the borrower earns money in a way that allows them to move forward. Productivity increases, and debt isn’t rising quickly relative to income.

Confidence is high. Financial systems are stable.

The confidence being high starts to be a red flag.

Exactly. You’re at that stage, and the monetary systems are hard. When we came out of World War II, gold was there. You couldn’t lend more than the amount of gold that backed it.

You had sound money and sound finances. Then time goes on, and those who are doing it are making money. Prices go from cheap to expensive.

I told you that the earnings yield on stocks was twice the bond yield. You could just take the dividends, but everybody was worried that stocks would go down. Then it changes. Prices go up, optimism rises, and people say, “Peter, you’re not in the market? Come on, what’s wrong with you? Sell your house and put it in the market.”

Then you get to the point where investment asset prices become expensive. You borrow money to buy them, and you have a debt bubble. The income being produced no longer services the debt.

Is that where we are today?

We’re at the point where, as I say, it looks to me like 1998. These things become extreme. I have measures and indicators that give me that view.

It looks like 1998, which means we still have about 1.5 years of good times ahead. It’s not surprising. The cycle goes like this. You know when you’re over here, and then what happens is that you see unsustainable debt growth.

The unsustainable debt growth we’re seeing right now is particularly in the government. The government is going to be in financial trouble, and I’ll get into that in a minute.

These cycles have happened over and over again. There are historians and printed books. Are politicians simply unable to make hard decisions in order to remain in political power? Is this just a failure of human nature, or is it both?

It’s both. You’re asking why these cycles exist, and why we don’t keep debt relative to income more or less the same.

The reasons involve politics and human nature. Credit creates buying and stimulation, and everybody wants things to go up. When the government says, “I’m going to give you money,” it’s mostly giving you credit.

When interest rates are lowered and credit is made more available, you go out and get a car or a house on credit.

Credit creates debt. Every time you get one of these cycles, they want to give you credit. It’s like giving an alcoholic another drink or giving an addict another dose. Politicians like credit because credit comes before debt payments.

I give you credit, we get into debt, and you love me. That’s why they want the Federal Reserve and the central government to be separate, to try to manage that. But human nature wants the credit.

That’s why debt relative to income goes like that. We all want things to go up. We’re all betting on things going up unless we’re buying things that will go down.

Traditionally, that credit employed people, who then consumed.

Yes. When they lower interest rates and make credit more available, you get your car and your house on credit. But credit creates debt.

So the party ends, and the bubble pops.

That’s right. You have the debt problem, and historically what they would do is give more credit—except when you hit zero interest rates, and then you have a problem.

I found it incredible that we got into negative interest rates.

Why do you think that’s incredible?

I was with central bankers, and when they had zero or negative interest rates, they calculated how negative they could make interest rates.

They estimated that, for a very short period, it could be as much as 400 basis points. They calculated that based on how much paper money you could store. If you had paper money, you wouldn’t have to accept a negative rate. Why hold something with a negative rate instead of holding paper?

The amount of negative interest you could have was essentially determined by that arbitrage.

When that happens—and it happened in history, in 1933, too—they print money and buy the bonds.

In 2008, and then again in 2020 when there was COVID, the government had to send out checks. The government doesn’t get to print money directly, so where does it get the money to send out those checks? It borrows. The government sends out the checks, the central bank lends it the money, and the money is printed.

Everybody gets all this money, and then there’s a surprise that there’s inflation. There were other things going on, such as disruptions in supplies, but mostly it was the amount of money going in.

There are 2 things that happen at the deleveraging point. I want to make that clear. The things that cause the deleveraging are supply and demand, and debt service.

Let’s take the government. The government is going to have to sell a lot of bonds to buyers because there’s so much debt around. One person’s debt is another person’s asset.

The world is holding all these debt assets, but for various reasons, people don’t want to add to them in a big way because they already represent such a high percentage of their portfolios. There are also geopolitical issues.

The amount that will be sold will likely be substantially greater than the demand for it. People start selling their debt, and that’s bad because one of 2 things happens: Either there’s a problem paying, and interest rates go up, or the central bank comes in and buys the debt, prints money, and devalues the value of money.

Either way, when there’s too much debt and a supply-and-demand imbalance, you don’t want to own debt unless there’s a change. I call that my 3% solution, but we won’t get into that now.

If they don’t deal with it, you’re going to have a supply-and-demand problem.

Then there’s what happens with debt service. I think of the credit system as the circulatory system in our body, and credit is the blood that brings nutrients throughout the system. But accumulating debt is like accumulating plaque, because more and more debt service constricts the amount that can pass through the system.

Government debt-service payments grow, and then you hit a point that, in markets, is usually called a debt death spiral. This is usually a problem for private creditors.

As debt-service payments rise, you have to borrow money to pay the debt. The creditor sees that and pulls back. The credit spread rises, and as the credit spread rises, you have to borrow more money. That is the debt death spiral.

That’s close to where we are with government debt.

For a company, that drives bankruptcy. In the United States, what does it drive?

It drives the central bank to come in and buy the debt and depreciate the value of money. That’s what monetary inflation is.

I used to wonder: How can you have an inflationary depression? If demand is depressed, how can you have inflation?

The answer is money production. Then people ask, “Why don’t they just stop producing money?” Because if they stop producing money, they’ll have a deflationary debt problem. That’s the dynamic and the mechanics I want to explain in the book, so people can see it.

People think they get richer if the prices of their houses and the assets they own go up, but it’s the same house and the same stuff. When the price goes up because of inflation, purchasing power is what matters—not the price.

Exactly. What can a dollar buy today?

That’s why I still like the meme: “1 Bitcoin equals 1 Bitcoin.” Unfortunately, 1 Bitcoin does not equal $1.

So, in these 5 stages of the debt cycle, we’re in the deleveraging stage?

The government is in the deleveraging stage.

When debt is denominated in the currency that the central bank can print, you always get money printing.

Yes. You always get money printing and devaluation of money. Then the debt becomes so cheap that it’s easy to pay off.

Japan is a good example. If you owned a Japanese bond, you would have lost about 80% of your money relative to something stable like gold. You would have lost about 60% of your money relative to a U.S. bond because you received 3% less interest and the currency depreciated by almost 4% a year. That 7% a year is what you would lose.

If you take it to the extreme in Argentina, you pay off the debt with wheelbarrows of pesos or whatever it might be. The debt becomes worthless.

Where are we in terms of this administration? Elon Musk has joined the Department of Government Efficiency. The goal is to cut government waste and move us toward a balanced budget.

Clearly, if we had done nothing, there would be no hope. We would be racing toward disaster. Do you think DOGE can make an impact on this?

Honestly, I don’t know the consequences or the realities of that. I’m not at the nitty-gritty level to say that if you shut something off, what the repercussions would be or how it would work.

I would need a much more detailed understanding, and I would also need to anticipate the action and reaction. It’s like tariffs. It’s very difficult for me to answer your question.

I appreciate that. But you’re clear that if we do nothing, there’s a definitive wall we’re racing toward.

That goes back to my 3% solution.

Under the existing budget, if there’s a rolling forward of the Trump tax cuts from before, the deficit will be about 7.5% of GDP. You’re going to need about 3% of GDP to stabilize it.

I call this my 3% 3-part solution. Get 3% in your mind. Can we get the deficit down to 3% of GDP?

There are 3 things that can do that. We know the first 2: spending and taxes. By taxes, I mean tax revenue, which isn’t the same as tax rates. The third is interest rates, because the interest rate on the debt is such a big factor.

I’ve gone through the calculations and studied this. In the study, you can read about it. One way or another, I don’t care how you do it. How you do it is almost an ideological question. The fact that you need to do it is what’s important.

It’s like a patient who has too much plaque and is eating poorly and not exercising. I don’t care whether you eat greens, exercise, or do something else, but you have to get that plaque going in the other direction.

That’s the 3%. You could do it through some mix. In my study, if you do it with the right mix so that it’s not too much of anything and isn’t traumatic, you’ll get a fall in rates naturally.

The market will be better off because there will be less risk. If there’s any weakness due to fiscal restraint, the central bank will ease monetary policy. That has always been the case. I show about 20 examples from around the world where this happened, including the United States from 1991 to 1998.

The real issue is that I think all policymakers should make this 3% their objective, because everyone is going to argue over the way to do it. They may not do it. That’s my worry.

There are some high-flying solutions out there, and I want to throw one toward you. My passion is longevity and extended health span.

Dario Amodei, the CEO of Anthropic, was at Davos saying something that has been discussed and asserted by a number of other people: In the next 5 to 10 years, we will see fundamental breakthroughs in human health span and longevity. We may see, in his words—not mine—a doubling of human lifespan.

We have a $101 million Healthspan XPRIZE going on right now to add 20 healthy years. One factor I find fascinating is the idea that if people have the cognition, fortitude, and vitality to keep functioning, then at 80 or 90 they could have the wherewithal they had in their 50s or 60s.

I have to imagine that would have a fundamental impact on the economics here.

I’m confused about that. I’ve seen studies that say extending lifespan is going to raise the cost of health care.

Health care?

You would know this better than I do, so I don’t have the answer.

Then there becomes the question of retirement age, which is very much a political question. The question is: Are you productive, or are you a consumer of productivity?

Today in the United States, average lifespan is around 79, and average health span is around 63. That means you’re spending the last 16 or 17 years of your life in some level of pain and decrepitude.

The goal is to change that so that you’re healthy initially and then extend both lifespan and health span.

You’ve engineered it beautifully, but I suspect you’re talking about longevity, not health during those years.

We have this baby boom, these old people of my generation, and a lot of them are living. When they die, they’re not a burden.

Dying according to actuarial or financial tables can be good. Remember the movie Logan’s Run?

Yes.

You were supposed to eliminate yourself at age 35 and turn yourself into a food supply. Anyway, that’s a different story.

I believe that if a person has the energy and drive, isn’t in pain, and isn’t restricted by regulation, then at the peak of their capability they’re going to want to stay in the game. That’s at least the hope and the work.

I would say your hope isn’t consistent with the realities. When people reach retirement age, they fight to maintain that retirement age. We’re going to find out soon enough.

I keep telling people that we’re alive during the 99th level of gameplay. A lot of these questions are, “I want to be alive. Keep me alive.” I’m with you. Keep me alive, even if I’m decrepit in my later years in ways I wouldn’t have been if I had died earlier.

Tony Robbins, who is a mutual and dear friend, and I both invite you to come and join us at Fountain Life.

I appreciate that.

Let’s talk about Bitcoin. I know you’re a Bitcoin holder, but you’re still more excited about gold, if I remember correctly.

Michael Saylor was my roommate and fraternity brother at MIT. He’s probably one of the most outspoken individuals on Bitcoin.

I’m sure you’ve heard Michael speak about Bitcoin. Are you sold on his vision?

Let me tell you what I think about it. I’ll speak for myself, and I think these things are accurate.

First, we agree on anti-money and anti-debt.

When you say “anti-money,” could you define that?

There are 2 purposes of money: as a store of wealth and as a medium of exchange.

As a medium of exchange, money will exist. As a store of wealth, you store it in a bond. Money and debt are the same thing, because when you’re holding money, you’re holding it in a debt instrument.

If you put your money—your dollars—somewhere, you’re going to be in a debt instrument. Otherwise, you lose about 5% a year. Money and debt are the same because debt is a promise to get money.

We have a supply-and-demand problem with money and debt. I don’t want to own money and debt.

Anyone who wants to hold wealth in a way that can’t be increased, other than through limited mining activity, is aligned with that. I want restrictions on the quantity of it.

The first thing I want to emphasize is how much of these things should be in your portfolio.

I’m the kind of person who prefers gold, for the reasons I’m going to explain. I have some Bitcoin, but I have much more gold. If you look at correlations, systems, and all sorts of other things, the least-risk amount to have in terms of maintaining buying power is somewhere between 10% and 15% of a portfolio.

That 10% to 15% would be Bitcoin or gold?

Yes, Bitcoin and gold together in that bucket.

On Bitcoin versus gold, here’s the thing: Bitcoin is not a private asset. The government can watch it. They know what you have, they know where you are, they can tax it, and they can take money away from it. It exists at their pleasure, and they can do anything they want with it.

The government is more comfortable with you being in Bitcoin than with you being in gold.

I agree that the movement of Bitcoin can be monitored, but it doesn’t exist at the government’s pleasure. Are you saying the government could shut it down?

It could, if it wanted to, through regulation and taxation.

When central bankers were discussing negative interest rates, they said that if they had a digital currency, there would be no floor on negative interest rates because they could tax you.

You don’t have privacy. You can be taxed, and so on.

Gold is the only asset you can have that isn’t somebody else’s liability. You have it in your possession, and that’s different.

The second thing is that central banks hold gold as reserves. I’m watching periods of conflict and so on, and central banks go to gold even when dealing with their enemies.

Governments print money and issue bonds during periods of conflict. That isn’t good, and they don’t want to hold each other’s bonds. Nobody wants to hold the bond. That’s why they hold gold.

That wouldn’t work the same way for Bitcoin, because governments can control it.

We do inflate gold every year. What percentage is mined each year?

A pittance—about 1% or so of the existing stock of gold.

And there’s consumption for jewelry.

Yes. Anyway, that has been the case for thousands of years, in all different places.

Another thing is that I can understand price changes in gold. If one thing changes and another thing changes, I can make sense of why the price of gold changes that way.

I have a harder time doing that with Bitcoin. It still moves in ways that don’t seem necessary. It’s a supply-and-demand speculative market, and that’s tougher for me to pin down.

I would expect Bitcoin to go up when there’s international strife or instability, or difficulty predicting what’s coming next. But we’re seeing swings that aren’t related to anything explainable today.

That’s right. When I go down the list of factors, I favor gold for those reasons.

Could you imagine changing your mind if something came along?

Sure. Tell me why.

Some people have said—and I’m not sure if this is right—that with quantum computing there’s a good chance you could break Bitcoin’s encryption. I don’t know if that’s true. I’m not an expert. I’m just raising another possibility.

If quantum computing allowed us to break Bitcoin’s encryption, we’d have much bigger problems. The same quantum decryption would give us nuclear codes and allow people to enter bank accounts.

We’d need to go to some island paradise.

I was in Bali, in this paradise, at a spot off the grid. They had a food plot. I didn’t realize how much land produces how much food. You can have a plot of land that isn’t very big and live wonderfully. Everybody is at peace, going to meditation, enjoying life.

Then I flew to China and went to Beijing to meet with leaders. They’re fighting for control of the world. You’re on the grid, and they’re going to get you, take your phone, and do all sorts of things.

We do have to reflect on some of these things.

Let’s talk about China and your 2025 predictions. There’s a lot of conversation right now about China versus the United States, and we have a new administration.

My concern is that we’ve seen DeepSeek and nuclear fusion. While the United States is vibrant in terms of its entrepreneurial and technology ecosystem, China should never be underestimated. It’s pushing across the board.

How do you think about China? How should an entrepreneur think about China?

We are at war with China. It hasn’t turned into a military war, but it has very much become a subversive war in which each side is trying to overthrow the other government and do all sorts of things. It’s not going to go back. It’s going to remain that way.

The 2 countries fight wars differently. One of the top leaders in China was describing the Chinese way of fighting a war and the Western way, which he called the Mediterranean way of fighting a war.

The Mediterranean way is that you go in and fight. You fight to win, and you kill each other. The Chinese way of fighting is to ensure that your opponent doesn’t even know they’re fighting you. If you’re not smart enough to win the war without actually fighting, you’re not very smart.

It’s a war of deception. There are different wars going on and different mentalities.

I don’t believe you’re going to be able to maintain control of intellectual property that is publicly used. Maybe if you go inside your own facility, use sandboxing, never bring it out, and never let anyone look at it, you can protect intellectual property.

That’s sort of how the atomic bomb was built. You can do some of that.

Both countries are trying to secretly build the weapon that the other one can’t fight against. The best way to win is to build a weapon the other country can’t fight against, secretly show it to them, let them find out that they can’t win, and then win without fighting.

We’ve changed the world order. It has been made very clear by Donald Trump that we’ve gone from a multinational, multilateral environment to a unilateral, each-country-for-itself environment.

We’re in a unilateral, might-is-right environment. If I can exert pressure on you to get what I want, that’s the way it is. Historically, that’s how most of history has been.

We’ve had a few wars. We had the Russia-Ukraine war, which I think will come to some kind of ceasefire. It will probably be temporary.

We’ve had the Israeli-Iranian proxy war, which Israel won. We’ve had a conflict between the United States and China in which the United States did both much better and much worse than it would have expected.

The Chinese have domestic issues, and we have domestic issues. We will have our domestic issues, but they have domestic issues, too.

It’s as if we’ve been banging things around and are surprised. The Chinese are probably a bit surprised, too. Nobody wants to go to war.

Over the near term, I think you’re going to have a behind-the-scenes, subversive kind of war. I don’t think it will go over the edge.

In terms of economics and technology, the winner of the technology war will win. You cannot lose the technology war.

That’s true not only for countries. The companies that are the hyperscalers must win the technology war. Profit may not be the number-one thing.

I think the opportunities are in the applications and usage of the technology. China is doing a lot better in that area in terms of actual applications. We’re advanced on the chips—though it’s a question of by how much—but China is doing better in terms of actual usage.

We have this dynamic going on, and China has its own set of issues. Over the near term, you’ll have a lot of pushing the edge and that kind of thing, but probably not going over the edge.

That isn’t a permanent set of circumstances, but that would be my take.

You said a few things that are important to emphasize.

Any restrictions we put on China for AI, such as restricting access to NVIDIA chips, force China to build capabilities internally. With Huawei chips, it also forces them to become much more efficient.

DeepSeek was an example of saying, “We don’t have the chip resources, so how do we change the algorithms and do it more efficiently?”

Darwinian evolution finds a way around constraints. We’ve seen that happening.

I’m also concerned about something else. You mentioned that 60% of the U.S. population doesn’t read above a 6th-grade level, which is shocking.

We’re about to see a leveling of the educational playing field when AI becomes a polymath in your pocket. In a conversation with your AI agent, you’ll be able to deduce, learn, create, or access anything you need, both in China and the United States.

We’ll have an augmented population. You don’t think so?

I go back to my experience. I have a son whose passion is educational technology. He has gone into the Third World and the poorest areas to provide connectivity, computers, and education.

He founded and built a device that connects to televisions and turns them into computers. The original theory was: Why shouldn’t people in those areas get educated through this technology? If they do, they can have different kinds of jobs and work remotely.

When I look at wealth gaps and other gaps, I was surprised that it didn’t happen. I’m hesitant to leap to the notion that it will happen automatically.

A lot has to do with parenting and guidance. We have an issue with parenting. Why does 60% of the population have less than a 6th-grade education?

There’s almost an assumption that those people are going to take this technology and become productive, but I was surprised that it didn’t happen before. I can see why it might not happen now.

I’m not assuming it necessarily will.

Fair enough. What are you seeing for 2025? What are your predictions for the year ahead?

Obviously, 2025 is a year of great uncertainty.

I think the first big issue we’re going to deal with is the budget. Right now, it isn’t the issue everybody thinks of as the issue, but in the first half of the year it’s going to become the issue. How they deal with it is very important to me because of the supply and demand in the Treasury market.

The Treasury market is the basis of all markets. It’s the foundation of all markets. If you create a reverberation in supply and demand, it changes all the capital raising that funds companies and projects. The world gets disrupted.

That’s the first thing I’m watching.

We’re going to see the first 100 days of a new administration, which is a time of great optimism. It’s also a time when priorities have to be set. The theories are going to be put to the test. It’s game time, and there will be consequences.

Does the cost-cutting happen? Is it realistic? How much can you do without creating secondary consequences?

There also has to be prioritization. I think the prioritization should be energy for data centers and the building of AI, in order to win the technology war.

Whoever wins the technology war is going to win the military war with China. But that will be a tough game.

When I look at that, I think we’re not going to be as happy a year from now as we think we’re going to be. The cycle is also an issue. Things are pretty expensive, and if you have interest rates rising, there are problems we can’t ignore in the face of the AI revolution.

You have to do this within 2 years, and it has to stick, because the midterm elections will swing. They’re going to be harder for the Republicans because they have more seats up.

It’s going to be interesting.

If you’re an entrepreneur or a business leader, what’s your advice for planning a business for the next 1 or 2 years?

You’re at a time of relatively good capital markets. Credit spreads are narrow, and there’s a lot of money.

Plan on surviving droughts as well as good times. Use the good times to fill your equity coffers. Don’t take on too much debt. Plan for realistic growth, and make great partners with the investors who are in it.

Ultimately, it’s going to be about your character. Don’t be overly greedy. Have relationships as well as money. Those are your foundation.

That’s beautiful wisdom, Ray. I’m grateful to you. Thank you for making your research available and for writing these books.

I wish we humans were a bit more intelligent and had longer memories. I wonder sometimes whether AI can help us get out of these repeated cycles and support us in more logical planning and growth.

I guess we’re going to find out—maybe if we ask it the right questions.

Good to see you, my friend. Thank you again for your time.

Grateful for you. It’s always a pleasure.

Thank you, Peter. Thank you, buddy.