Thomas Friedman：
Ray it's a treat to be here with you um uh Ray and our old friends and um I've been in conversation before
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um I wonder if you just start Ray by sharing with me with the crowd um why as a macro investor you decide to step back
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and write this book on principles of a changing World Order and then let's go into the the uh the key principles
Ray Dalio
okay I learned a while ago that the things
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that were coming at me that I had to deal with often surprised me if they didn't happen in my lifetime but I found
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that they happen many times in history uh first time that it happened I was
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clerking on the floor of the New York Stock Exchange 1971 August 15th
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President Nixon gets on the television and says that they're going to default on the obligation to turn cash money
0:50
into gold so I went on the floor of the stock exchange I expected of code down a lot it went up a lot and I was real
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surprised because I never had a currency devaluation in your in your experience in my life yeah I went back and I
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studied and I found the exact same thing happen on March 3rd March 5th 1933 with
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Roosevelt doing the same thing on a radio and I studied why and I studied the currency so what happened for me is
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there are three big things that are coming at us in our lifetimes now that
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didn't exist before and that's the amount of debt creation and the
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monetization of that debt in other words central banks printing money and buying all that debt never happened in that
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magnitude the second is the amount of internal conflict that political and so on was
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the largest wealth gaps since the 1930 to 45 period the largest
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political gaps by any measures the largest amount of populism I never saw
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in my lifetime those two things um and at ozica
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number three was of course the changing World geopolitical situation well I'm in
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my lifetime in our lifetimes we have never seen a power being comparable right to the United
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States in power we saw the Soviet Union but they were not economically powerful and it's very very apparent that there's
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that rivalry and and conflict between them those through three things all of
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them um never happened before in our lifetimes but all happened in the 1930 to 45 period
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and then I said I I need to understand those and I need to understand like I'm
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dealing with the Rises and declines of Reserve currencies and then they follow the Rises and declines of Empires and in
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order since they have an ark that's a long Arc but it's right on top of this I needed to go back the last 500 years and
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see that cycle and then I saw two more factors which I'll get into in a minute
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so let's go into that you basically identified five factors of that account for the rise and fall of countries and
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um uh economies geopolitical systems you produced a video um to identify this can we can we see
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that sure I'll tell you the two others that I discovered when I was there and when you have a Confluence of these you
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changed the world order and when I say order I mean there's a system
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we have a political system that's in order we have a world system how it works is the system and we're changing
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how that works and so the two others that I found was that acts of nature
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droughts floods and pandemics had a bigger effect on toppling civilizations
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and causing more deaths than the first three I mentioned interesting and of
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course very relevant to now what you're watching and then number five is the biggest force over a long period of time
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is uh man's learning and technologies that they make as a result of that
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learning over a period of time so when we think of Technology as having an effect okay all five of those things are
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the five Great forces and how they relate to each other so I think each one of them so what I wanted to do was I
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found it important other sounded important and I wanted it was a study that I was using to deal with today
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right my positions today are driven by that yes and I decided that I was going to put
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this study out as a book and then to try to communicate clearly I did a video
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it's uh it's about a 40 minute video uh animated video but I'm taking a clip of
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it and this just sort of describes the cycle that we see happening over and
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over again so great how these five keep repeating themselves at different points in history with different powers right
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and that yes we'll see It'll speak for itself cue the video
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I studied the 10 most powerful Empires over the last 500 years and the last
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three Reserve currencies it took me through the rise and decline of the
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Dutch Empire and the Gilder the British Empire and the pound the rise and early decline in the United
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States Empire in the dollar and The Decline and Rise of the Chinese
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Empire and its currencies as well as the rise and decline of the Spanish German
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French Indian Japanese Russian and
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ottoman Empires along with their significant conflicts as measured in this chart
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to understand China's patterns better I also studied the rise and fall of Chinese dynasties and their monies back
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to the year 600. because looking at all these measures at once can be confusing
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all focus on the four most important ones the Dutch British U.S and Chinese
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you'll quickly notice the pattern now let's simplify the form of it as you
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can see they transpired an overlapping cycles that lasted about 250 years with
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10 to 20-year transition periods between them typically these transitions have been
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periods of great conflict because leading Powers don't decline without a
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fight so how am I measuring an Empire's power in this study I used eight metrics each
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country's measure of total power is derived by averaging them together they
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are education inventiveness and Technology development competitiveness
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in global markets economic output share of World Trade military strength the
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power of their financial center for Capital markets and the strength of their currency as a reserve currency
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because these powers are measurable we can see how strong each country is now
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was in the past and whether they're rising or declining
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by examining the sequences from many countries we can see how a typical cycle
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transpires and because the Wiggles can be confusing
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we can simplify it a bit to focus on the pattern of cause effect relationships
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that drive the rise and decline of a typical Empire as you can see better education
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typically leads to increased Innovation and Technology development and with a
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lag the establishment of the currency as a reserve currency you can also see that these forces then
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declined in a similar order reinforcing each other's decline let's now look at the typical sequence
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of events going on inside a country that produces these Rises and declines in a
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nutshell the big cycle typically begins after a major conflict often a war
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establishes the new leading power and the New World Order because no one wants
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to challenge this power a period of peace and prosperity typically follows as people get used to this peace and
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prosperity they increasingly Bet On It continuing they borrow money to do that
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which eventually leads to a financial bubble the Empire share of trade grows
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and when most transactions are conducted in its currency it becomes a reserve
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currency which leads to even more at the same time this increased
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Prosperity distributes wealth unevenly so the wealth Gap typically grows
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between the rich Haves and the poor have-nots eventually the financial bubble bursts
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which leads to the printing of money and increased internal conflict between
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the rich and the poor which leads to some form of Revolution to redistribute wealth this can happen peacefully or as
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a civil war while the Empire struggles with this internal conflict its power
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diminishes relative to external rival powers on the rise when a new Rising
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power gets strong enough to compete with the dominant power that is having domestic breakdowns external conflicts
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most typically Wars take place out of these internal and external Wars come
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new winners and losers then the winners get together to create the New World
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Order and the cycle begins again um it's a little scary because it's a
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little um it's quite Bleak when it comes to America um in terms of where we are in your
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cycle where China is and even if China weren't Rising um uh you can't watch that video and
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watch the evening news without thinking yikes um you know that uh curve is heading
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down well I'm I have to be a realist I have to make bets on what's likely to occur and uh and I have a principle if
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you worry you don't need to worry if you don't worry you need to worry
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okay I like that because if you worry about that right then maybe you'll do
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something about it right right in other words I think if we worry about that maybe we'll do the healthy things right
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these basic healthy yes broad-based education equal opportunity how do you
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get out of it yes right that's interesting um do you see anything right now and we'll move on
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to China in a second but in America where you think maybe the alarm is being
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heard and we can um reverse that curve
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um the alarms I think are beginning to be heard okay I thought the last midterm elections yes there was less of a move
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the extremist loss right yes okay I think you need a strong middle yes and then you have to do healthy things
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interesting the magnitudes of that movement are very small really relative
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to the issues yes like this dealing with the debt ceiling yeah you know it's ridiculous right how it how it happens
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right nobody does anything really they just and they go on right okay yeah so the finances haven't changed yes and so
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on I mean there are there are glimmers but you have a you have a structural issue it it's just like if you got
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deeper into debt you're not as healthy as you were it's like if you smoked and didn't exercise
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or something right you're not as healthy as you were so when you think about the debt all the amount of money
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that everybody's holding a death expects to get a real return on that yes and you think okay it's not like you didn't have
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the debt and so you have to make let's take the economic one you have to
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earn more than you spend right I mean it's that's the basics you have to earn more than you spend and and in order to
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get healthy well that means that you either have to cut your spending and that's a problem or you have to raise
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your income so it's not easy okay um and so it's we are where we are right
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and uh but it is I think I think the real big thing is
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how people are with each other in other words if we think about the whole right
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because if you take per capita income until the highest it's been we take Technologies and our living standards
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are still in the world the highest they've been um but how you work that all out
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domestically how are we dealing with other immune with respect with um in a way that can produce collaboration yeah
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I like I would well not only collaboration but I mean I think the basics like
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you look at the societies that are doing well you have to have a basic
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uh education nutrition these types of Basics if you look at the
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societies that by and large do well throughout history and it's back to
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equal opportunity more equal opportunity nothing's perfect but you have to deal with those structural basic issues and
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it's difficult because you know different everybody wants to hold on to the money and of course you're deeply in
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debt and then you need a lot of money yeah um and the hole gets deeper so China uh
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Ray what what are they getting right um relative to us and what would you say
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China's getting right that most Americans don't appreciate and understand oh okay I I've been going to
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China uh for 39 years I want to started in 1984.
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um soon after dang Xiaoping came to power and I've been very lucky I they didn't have many money I didn't go for
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money right I went for curiosity and then I really got to be part of helping
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them build the system and so and so forth um and um so since I started to go per
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capita income has increased by 28 times life expectancies increased by 10 years
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the poverty rate has gone from 88 to Hungry poverty to less than one percent
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these kinds of things and um and what they got right was the reform and they
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did it in a symbiotic relationship with the United States um in which essentially they sold us
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inexpensive good value Goods that we preferred the prices of and they lent us the money to do it it's a difficult
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relationship um so they and and if you I studied the
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dynasties going back uh over 2000 years and what they
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um they have a oh they're intelligent they have a work at that it's semi-confusion meaning that
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they're you know orderly they're intelligent hard-working people um you know those basic elements they've
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got right they had it the easy way because they started with of you know
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when they closed the door right from 1949 until 1978 they closed the door so
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they got really backwards and so that bounced but they have a population that's more than four times the size of
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the United States so when you get to have income let's say that's half the United States so then you have an economy
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that's twice the United States so there's a great deal of uh of that I I would say
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um their their water lead they're disciplined they're hard working they can be very
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creative there are different cultures within China you know the southern is more the business Community whatever
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open to the world and so on um I I think that one of the things that is
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not understood is how the confusion way of thinking affects their foreign policy
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oh so um
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Confucianism is an idea of how a family should operate that within your family
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you are controlling your family you have the right be a good be a good you have
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these rules then you interact with others so it's an extension of that they view that within
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China that that is their family they call it's an extended family the word country in
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China is two Chinese characters which is State family okay so
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and and then that also is why it's autocratic because it's very much top down like strict parents operating that
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way um when they're dealing with the outside world
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um a man I think that we both know Wang XI Chun Who's the who was just the vice
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president of China and so on described to me he he said this idea of taking
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over and uh proselytizing other countries in which you want to it just
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doesn't work you know if you're going to occupy and you're taking away their basic rights that you know that that
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doesn't work Afghanistan doesn't work that and and he said that that was the development of the
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um Mediterranean culture and he described that up really to the piece of
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Westphalia when they had 30 Years War and then we came up with the idea that we would make a country and we would
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make borders and that with those within the borders would control how they did things and those outside so when we
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think of it um I think they want to be as competitive and do as well as they can but we you know when you ask how do
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we misunderstand yes I think this idea of fight and Conquer right is not the
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same it is more of a hierarchical thing in which those who become more powerful
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all are more powerful need to be more respected and then there's a
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relationship which is most almost a vassal safe relationship those around them and there's a way that those who
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are powerful should deal with those who are less powerful right and those who are less powerful should deal with those
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who are more powerful that is a sort of a mutual respect and that so I don't
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think they're out to conquer the world and I don't think they're out to have a military power there's an argument one
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could make that China got to this rise through a very
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um uh clear policy laid down by dung Xiaoping of regular rotations in power
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so the system is constantly refreshed and that there's opportunities for
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Rising people um it was also hide your power a little bit don't freak out the world
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um and one could make the argument that um uh seizing ping the current president is breaking a lot of those rules he he
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ended the rotate nation and power at least by taking another five-year term
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um he's freaked out I think a lot of China's neighbors let alone us how would you could China be at Peak
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China right now not you know uh on this upward curve how do you think about those first of all I want to make clear
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that I'm not a defender of China I'm just an observer and you know
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um and that and I'm trying to just factually answer your questions uh to produce understanding but not to produce
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advocacy yeah I'd much rather live in the United States and have all the freedoms that we have and all the
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blessings that we have than to be living in China under those set of circumstances so I just want to be clear
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in doing that um if you study the dynasties then this is
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in their minds uh Chinese study history they all the leaders know the dynasties there is an arc in terms of what types
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of leadership what types of ways work okay so you can have all of these
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different types of styles of management the more autocratic and not and if you go back to Plato and he look at the
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Republic and he wrote how there's an evolution of democracies because democracies are not A New Concept way
20:40
back then and you look at those cycles that there is a cycle over that and we
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see that cycle in the um in the history of our own country or the history of the
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world that what happens is during the biggest risk of a demo of a democracy is
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an anarchy during a difficult time then right so in the 30s 1930 to 45 period
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four major democracies chose to be autocracy
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so dang Xiaoping says that there's I
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uh big storm a hundred year storm on the horizon Okay now what's that hundred year story
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I think he does believe that we have this issue this great power conflict it's a big deal and then they have
21:29
internal storm they have lots of things internally that are their problems and he wants to take control of it and so I
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watched the evolution of that from Deng Xiaoping I think if you exactly you
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described it very well you know um when you have power you hide it and when
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you don't have power you show it as much as you can you know and that whole process absolutely and then if you
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couldn't hide it anymore and you moved beyond that and so um we're part of that cycle I think I
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think they view that as part of that cycle that's where they are now your question is does it work
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okay um and I think the right question is does it work better than our democracy
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also which faces its particular challenges but um the the truth of it is I think that
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it works a lot less well because um there are big changes now
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um it's no longer glorious to be rich yeah okay the decision making is very
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dictatorial from the top down which makes it very difficult to run a country
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because you at that level you're not having it bottom up you have to control almost all things that's a particular
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challenge um also people are afraid to make decisions
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um they're fearful you know better no decisions than to make the wrong decisions to get in trouble with it so
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there's more fear over there and then of course we have these other things that are going on this great world conflict
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which is having an effect on Chinese companies and Chinese who them self say
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am I you know maybe I should set my business outside yes and foreign countries companies too that say okay am
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I going to get sanctioned and where is it and so elsewhere in the world is benefiting the neutral countries are
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benefiting and India is benefiting the asean country so outside of Singapore
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Indonesia Vietnam all of those countries are benefiting so let me ask um uh
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country I didn't figure in here but another big part Russia how do you see Russia Today in terms of the the very
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patterns um and attributes of of successful countries how do you look at poop in Russia Today well even before even
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before very interesting I took all of these indicators and I
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could forecast pretty well you with them the next 10 years growth rates if the anybody wants to see them they're
24:05
in the back of the book and they're also I update them free online so you could see them and what Russia had
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um or they basically had a cultural problem in terms of
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um uh corruption um
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disorder fragmentation all the elements that you say where you have equal
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um education you educate your population well alcoholism as a problem in terms of
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those types of things their strengths was they didn't get much in debt but they didn't have a creativity and and
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all of that technology development they had nothing they became they're a big resource exporter and so on so that's it
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you take that away so they didn't have the elements that I'm describing in other words the building of the quality
24:56
education the inventiveness and all of that problem in terms of that so that
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existed before and then we have this real screw-up to be to make this kind of
25:07
move that's right I mean it's a you know it's a very very Bleak situation and one might have said it when after World War
25:15
II or even in up all through many of our years that if you were to look at Russia
25:20
and you to look at China you would say okay well you know maybe you'd bet on
25:26
Russia yeah and do that but these cultural issues in terms of indicators like there's a negative 54 correlation
25:33
between corruption and the countries next 10-year growth rates that so these are the problems Raya for Kevin McCarthy
25:40
and and President Biden invited you into the Oval Office right now said uh we both read your book we see those curves
25:48
China going this way and us going that way what can we do in the near term okay
25:57
um first of all smart bipartisanship
26:06
yeah what's number two [Laughter]
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but no I know what you mean without that there's okay
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you we can re-engineer things in other words there is a certain amount of debt how do you deal with the debt
26:26
and how do you deal with the payments on that debt how much is going to be monetized how much is going to be whatever it is how do you raise
26:34
productivity so that it benefits the majority of the people let's say the
26:39
basic things like education then civility of the population in other
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words these these Basics that we're talking about um how do you do that um like I basically think that if we had
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a strong middle I almost don't if you had smart bipartisan people from the
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middle government who fought for what they agreed on yes and so on and were inventive I think
27:06
that they could deal with that I worry about the extremes okay I worry about the extremes the rich the poor or that
27:13
the lack of opportunity and so on yes so um I I think smart bipartisan chip if
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they said I would get together and we will um deal with the extremes and I think
27:27
that what you need is a like a a Manhattan Project plan in other
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words take six months uh and bring those people together and
27:39
make them make an agreement of how that thing works they don't come out of that until they have an agreement of how that
27:45
thing works I think smart people could engineer a lot in order to make that and
27:50
I I almost don't care what they've come up with if it's smart and they're bipartisan and then they fight the
27:57
opposite extremes the extremes I think we'd make a lot of progress It's well uh
28:03
I think there's a lot of wisdom in that um Ray you alluded to India a lot of people
28:09
you know um think India may be the the real winner
28:15
between the competition between China and the United States what do you see the strengths and weaknesses of India in
28:20
terms of your framework they the the indicators give a 10-year projected
28:26
growth rate India has the highest projected growth rate
28:32
um and the reason is uh some of the indicators are the cost of an educated person okay
28:40
education is very important but in many places an educated person can be very
28:46
expansive right in India they have very low costs of an
28:53
educated person okay so that means that's powerful okay the um level of indebtedness
29:01
if you have a high level of indebtedness you're going to probably have a problem they have very low levels of
29:07
indebtedness technology development we're seeing big leaps forward in terms of how this
29:15
incredibly poor country that doesn't have toilets is going to technology development in in
29:23
many ways this inventiveness and so on so it has you know if I was to go many
29:28
of those three types of things within this country they have um wonderful education they have
29:34
wonderful family they have you know there are more millionaires in India than there are in the United States or
29:41
anywhere really so the ability to have that middle class and to rise and then
29:46
we go back to the basics you know three basics are you earning more than you're spending
29:52
as a country yeah well and it's good for an individual too yeah okay
29:58
are you learning more than you're spending
30:03
um are you working well together or are you fighting with each other internally
30:10
and or you're at risk of a war externally
30:15
if you take those criteria those basic things your financial condition is good
30:21
you earn more than you spend so your income statement and balance sheet are good you're not at work internally so you
30:28
don't have the disruption and you're not at War externally okay you're in a good
30:33
place what I like about yours and the other thing about it just one more point is
30:40
if you look at the history of Wars it might have there's the winners the losers in the
30:46
neutral countries the neutral countries
30:51
economically and by almost all measures their markets their Investments do better than even the winners
30:59
and if you're a loser it you're wiped out okay so when we look at this types
31:05
of thing you're seeing a Prosperity that's happening in these places places
31:11
you go to I go to you look at them you know they're beautiful they're they're
31:16
operating efficiently and so on and they're neutral in this so we've got some questions from the
31:22
audience um uh you know since you wrote the book uh chat GPT has come out
31:27
um and uh we've had this Great Leap Forward in AI um you know how do you think that can or
31:35
will change um the criteria especially for China which
31:41
um will it's got its own AI but they will be limited when you can't ask your
31:46
AI what happened in Tiananmen Square in June 6 1989 or write me 10 jokes about
31:51
Xi Jinping yeah I mean that will be that will be a limiting factor I'm kind of thinking so but how does AI figure in
31:59
now to your thesis well yeah um
32:04
it is a tremendously powerful resource uh not just in terms of giving you
32:10
information but um I know somebody in terms of computer programming nasty mountains it says go
32:17
find the mistake in the program and they can go into it it's an incredibly powerful thing
32:23
so how it's used is the most important thing and there are no regulations right
32:29
so the problem isn't with the technology the problem is with the people and so
32:35
when we have this war okay are we going to use it to improve mankind or and all
32:42
are we going to use it to fight so we're in this environment in which this
32:47
incredibly powerful force is not regulated nor any Prospect of Regulation
32:53
and we are an environment of confidence in which most likely I worry that this
32:58
would be weaponized and there's not an easy way around it because there's no world government or anything like that
33:04
now you're exactly right with uh China being behind on this yeah um they're behind for uh two reasons
33:12
first of all the chip development is two to four years behind on this type of Chip and they're worried about this because
33:19
on um in that two to four years there's going to be a tremendous amount of
33:24
learning that they'll be behind on yes just because of the chip development and then it's exactly right as you say it
33:30
used to be that um when you can get all the information because they could get all the information all the data on
33:37
everybody on everything right and you put AI on that wow that was a powerful
33:42
alternative plus they have eight times as many Engineers computer engineers and you figure wow what a competitive
33:49
advantage that really helped them on Health Care they did a lot and official recognition because they didn't have privacy regulations batteries and all
33:56
sorts of things right just amazing but when you have this impermeable bubble
34:01
right or something just as you're referring and you can't get information in yes or even that whole notion and
34:08
you're two years behind in terms of the technology it's a problem and I want to
34:13
emphasize that if we take the next 18 months to two years
34:21
this is going to be a period of of great disorder yeah I think I agree with you
34:27
because we have in our tightening of the financials we have the tightening yes and not yet the consequences so you just
34:33
think of a normal business cycle just explain that to the audience just what we're having a tightening okay and yet
34:39
we haven't seen the consequences I think people would be okay there are these Cycles you know
34:45
recession growth recession stimulation growth Prosperity gets too hot
34:52
unemployments through low tight monetary policy tightened stock market goes down
34:57
right and then the economy goes down right those on average have lasted seven
35:02
years give or take about three years and since 1945 when the new system the new
35:09
water came about there's been 12 and a half of those so we're in the spark of the cycle right now where they have
35:16
tightened the monetary policy interest rates they have had the costs of those types of this and at the part of the
35:23
cycle where just credit is beginning to fall and the consequences of that are going to happen and that will move us
35:30
into the next 18 months okay in terms of the normal consequences of that meaning
35:37
a worse economy profits more unemployment right those kinds of issues go going into elections right okay now
35:46
in elections we have a great deal of polarity a great deal of polarity yeah and you
35:52
put together that with this other with and you have the wealth Gap the rich the poor and so on that and then you also
35:59
have the popularity of anti-china yeah and and and that issue in terms of the
36:04
conflict going into that and in China's case so we're taking these three forces yeah I take the and then you have the
36:10
Chinese we are really very close to the edge yes in terms of Brinks of yes and
36:17
it could be a sanctions War an economic war or a military war related to Taiwan they're both at the edge and then you
36:24
have the technology that we're just talking about usually disruptive yeah we're gonna feel it you're going to
36:29
start to see it in dramatic ways and there's no order now I mean there's no
36:34
system for coordinating that right so that's likely to be a period of significant disorder
