is brought to you by Swiss International Airlines.

Flying to over 70 worldwide locations.

Truly Swiss made.

Swiss International Airlines.

And by the BMW European Delivery Program, a way to experience the roads that BMW was made to drive.

BMW European Delivery Program.

And by the Cygnet Foundation.

Raising funds for those in need through art related initiatives, contributions to UNICEF, and animal welfare organizations.

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(bright classical music) "Travels and Traditions" with Burt Wolf is a classic travel journal, a record of Burt's search for information about our world and how we fit into it.

Burt travels to the source of each story, trying to find the connections between our history and what is happening today.

What he discovers can improve our lives, and our understanding of the world around us.

(rousing classical music) - I needed to learn more about dealing with the changing world, and how that affects our lives, so I went to see a man named Ray Dalio.

Ray Dalio is the founder of Bridgewater Associates, which is one of the world's largest investment funds of its kind.

This is Part Two of my talk with Ray about dealing with the changing world order.

In Part One, Ray explained the first three stages of how a country begins to grow, gain power, and then eventually declines.

In this program, we'll take a look at the final three stages.

We'll also find out how money really works.

(jazzy upbeat music) Stage four is a period of excesses, marked by rapid increase in debt financed purchases of goods and services and investments.

Your debts become so great that the future income isn't enough to service the debts.

- Also, it happens, particularly if you have, you're very successful at the country, it's very successful internationally, because it has the world's money, it has the world's reserve currency.

And what happens when it has the world's money is that others want to hold that.

That's their security, okay?

The dollar is the medium of exchange.

And so when it's the medium of exchange, you say, I wanna hold the dollars.

So what happens is you transact in dollars, and you save in dollars, and one man's savings is another man's debts.

So that country can get deeper and deeper into debt.

And so classically, as you go from the 50s into the 60s, and then you start to see the later 60s, you overspend, okay?

There's the Vietnam War.

There is the war against poverty, and all of that spending.

And so you start to see, as you get into the 60s, you start to see too much spending relative to the amount of money, because gold was money.

So now you have a lot of IOUs out there, okay?

And then you can't meet the IOUs.

And so you have the breakdown of the monetary system in 1971.

Well, this arc has happened over and over again.

It's the same with the Dutch, and the same with the British, and the same with so many others.

- People often believe that what is going up will continue to go up, but that is usually not the case.

(flames crackling) The Hindenburg disaster is a perfect example.

What goes up can also come down.

- And I compare it with a stage four cancer.

Okay, that's not... That's a dangerous situation.

And it's gotten to the point that it's not so easy to treat.

- A perfect example of the wrong leader in stage four would be Louis the XIV in France.

(woman moaning) - It's good to be the king, - [Burt] And Emperor Nero in Rome.

(exciting music) (people cheering) - Good show!

Bath tub.

Treasure bath!

I'm going to have a treasure bath!

Treasure bath!

(all cheering) Do it!

Do it to me!

(all cheering and laughing) (rousing classical music) - When we were putting this program together, Ray felt that the United States was in stage five, and the question was, how long could it hold together before it began to break?

- Stage five is when you don't know.

You're right at the edge of the brink.

Classically, there's a lot of production of debt, and printing of money to pay that debt.

- [Burt] You can see signs of this happening now in a number of countries.

Those that have incomes that are greater than their expenses and assets that are greater than liabilities are in relatively good shape.

Those that do not are in relatively bad shape.

They want money from the countries that are in good shape.

The problem is that there are many more countries in bad shape relative to the ones that are in good shape.

The single most reliable indicator of approaching civil war or revolution is the bankruptcy of government finances combined with big wealth gaps in the population.

- The government wants to spend money on various things, social programs and so on.

They don't have a limit to how much they spend.

They can print money, and they could also take money from some people and give it to other people.

Taxes.

So now the government needs to spend more money.

They have to send checks out, and all of that.

But they don't ask themselves, how much money do I have, and how do I prioritize it so that I can spend it?

No, they say, I have to spend money, and then they go spend money.

- [Burt] Those states and cities in the US that have the highest per capita income and wealth levels also tend to be the states and cities that are most in debt and have the largest gaps in wealth.

San Francisco, Chicago, and New York.

States like Connecticut, Illinois, Massachusetts, New York or New Jersey.

- And then the question is, where do they get it?

And the problem with taxes is you gotta take it away from somebody in order to get it, and that causes fighting.

Stage five is also that the system is beyond compromise.

At the brink of a type of civil war in which there's both sides having a win at all cost approach.

In other words, populace of the right and populace of the left.

We can go back to all the cases, the French civil War, the Russian, you know, they're...

They're beyond, they're at the brink.

- [Burt] These are also the stages where each side uses the media to manipulate public opinion to destroy the opposition.

People are attacked and essentially tried and found guilty in the media, and have their lives ruined without recourse to a judge or jury.

(exciting music) Fake news has always been part of the game.

During the First and Second World Wars, the United Kingdom created a Ministry of Information to make sure that the views of the government, and only the views of the government, were presented to the Public - [Announcer] Britain's citizen army.

(gunshot fires) Tough now and equipped with the finest weapons from the home and American factories.

- [Burt] And that approach to the media goes as far back as the French Revolution.

The newspapers printed by the revolutionaries pushed anti monarchist stories.

But as soon as the revolutionaries took over the government, they shut down dissenting newspapers.

- And that's where we find Fox 12's Chandler Watkins tonight as she kicks off our live team- - [Burt] In stage five, the use of the media in this way has increased.

One result is a deep distrust of the media.

A Gallup poll in 2019 found that only 13% of Americans had a great deal of trust in the media.

- Wealth and power differences lead to more extremism.

And the populace of the left, populace of the right, are fighting on a win at all cost basis.

There's not compromise.

There's not- - Boy, you see that today.

- [Ray] Yeah.

(people jeering) - [Burt] In stage five, there's also an increase in the number of protests that become increasingly violent.

(people shouting angrily) That leads to populist autocrats who represent large segments of the population who wanna have a strong leader, someone they believe that can get things under control, close down the chaos, and make the country work well for them.

- I think we've got a much more serious situation now, a communist infiltration of the CIA - [Burt] Senator McCarthy during the 1950s was a perfect example.

Fortunately, there were people in the media who spoke up, people like Edward R. Murrow, - But the line between investigating and persecuting is a very fine one, and the junior senator from Wisconsin has stepped over it repeatedly.

- And I think as we look at it today, we can see this fragmentation taking place.

And you could see, therefore, populations going to different states, different localities.

You're seeing a situation where there's not the respect for law in the same way.

For example, the Supreme Court, when we were growing up, it was a highly respected institution.

Now it's treated as a political game.

And do we follow the Supreme Court's rulings becomes in question, right?

And so we see the January 6th fighting, and so on.

So the question becomes are these factions gonna be able to work it out, or where will they carry that fight?

- [Burt] History shows that this is the stage where federalist democracies, like the United States, begin to have serious conflicts between the states and the federal government as to who should have power over what.

Examples of stage five are Athens in the late 400s to 300s BC, the end of the Roman Republic in the century before the birth of Christ, (shouting in foreign language) the weak democracies of Italy, Japan, and Spain during the 1920s and 1930s that led to fascists taking power.

- And then you have, internationally, the same thing happening.

It's a win at all cost mentality, while this competition is weaker.

So that is right at the brink of war.

(tense dramatic music) Well, stage six is the war.

The civil war, the external war.

It's the fighting.

But let's say, for example, stage six, if it would be the disregard for law and rules.

It might look like, let's say in the United States, it might look like the state governments do not follow the central government.

They say, make me.

And you're dealing with questions of how do you make them?

Like sanctuary cities were a good example, you know, the idea that a city was going to say, okay, you want to grab these people for immigration or something, we're not gonna allow that.

And so that is the beginning of a fragmentation and a breakdown, because now you're testing who can make whom do what.

- Most revolutions move from right to left.

But every once in a while, the left becomes so dysfunctional and confused that the population moves to the right, looking for a strong leader who can hold things together.

Examples of revolutions from the left to the right are Germany, Spain, Japan, and Italy during the 1930s, the Soviet Union in the 1980s.

Typically, the people who lead civil wars and revolutions are well-educated and from middle class backgrounds.

- It can be shooting, and violent, but there's a continuum there.

Maybe it's not shooting and violent, maybe it's just the breakdown of that system.

But you're establishing a new way of doing things, a new world order.

In history, it has become violent.

It has become violent, because you cross a line.

Hate.

Sometimes a signal might be bloodshed.

I don't know where this thing goes, but I do really feel that if I take the financial, the internal conflict, and the external conflict, we are in stage five at the brink.

Doesn't mean we're gonna cross it, maybe.

But I think that's where not all we are, the United States is so important in this, of course, because it is also a world power, so it changes the whole world order.

- [Burt] Another key point.

Almost all civil wars and revolutions have had some foreign powers involved in order to influence the outcome to their benefit.

- And you know, at the end of the day, it's just important to be strong and healthy.

If we look internationally, the war is really with ourselves.

If we can be strong and healthy, then we have nothing to worry about.

- [Burt] Hmm.

(bright music) - There are short-term economic cycles, which we're used to, because they are the cycles that recessions go to growth periods, that go to inflations, that go to recessions, okay?

And the way that works, those cycles, there have been, they're on average six or seven years long, give or take a few.

And there have been, I think it's 13 since 1945.

They just go like this.

And so you know where you are.

So I just want to put that in perspective.

You have a period of economic contraction and falling inflation.

And what they want to do is they wanna pick it up.

And so the what they do is they offer credit.

The government comes in and they make it cheap.

So they offer nice, cheap credit.

And so credit is used to make purchases, buy houses and cars, and buy stocks, and things go up, and so on with the credit.

But credit turns into debt.

And when it turns into debt, then debt has to be repaid.

And then as that cycle progresses where there's that, you know, the boom period and the prosperity, and that sweet spot, as I'll call it, as you come up there, then inflation starts to emerge, and things become tighter.

And then the central bank tightens, they change what they're doing.

They tighten credit, they raise interest rates, and so on.

And then it goes down again.

Okay?

So that is what a typical cycle is.

We've had a bunch of them.

They're all slightly different, but that's basically it.

Then they all add up over a period of time to make the big cycle.

The big cycle ends up being about 75 years long, give or take about 25.

Because what happens is all these shorter term cycles, they wanna still not get to be too bad.

So when they come back and the debt payment is there, they continue to create more credit, and create more debt.

- Let's print money.

- And so this continues to cause, over a long period of time, debts to rise relative to income.

In 2020, we had the COVID, and then we also had a political shift from the right to the left.

And as a result of those things, the government had to send out a lot of checks.

Where did they get the checks from?

Where'd they get the money from?

They ended up printing it because they couldn't tax it away.

And so, lo and behold, it produces an inflation.

Is this a surprise?

And then you also have the international conflicts going on at the same time that start to affect the efficiency, supply chains, and so on.

So we're in that cycle, at the same time as when we look at the big cycle.

Okay, where are we in the big cycle?

Okay, we're at that stage where we have an enormous amount of debt.

We have been, and we're chronically, spending more money than we're earning.

And we're doing that with debt, and we are printing money.

The main thing is usually there's a supply demand balance.

The free market, lenders and borrowers, right?

But now we're in a situation where since 2008, there have not been enough buyers of that debt.

You don't have to sell the debt.

So the central bank comes in, and it becomes the big buyer of the debt.

This is classically a late cycle type of thing.

So we're kind of in that late cycle, and we've got those debts.

So when you look at economics, for example, people tend to look at GDP.

In other words, okay, how much are you producing?

That's not the most important thing to look at.

It's like a business.

That's like looking at the revenue of the business.

It's not looking at the wealth.

And what's happening is we've accumulated a lot of debt that is against our assets.

- Yes.

- Okay?

So we have a negative net worth, essentially.

- Yeah.

- Okay, we owe that.

We're gonna have to pay that.

And that has a big impact, 'cause there's this shift in the relative wealth.

That's where we are.

- And money and credit are the biggest influences on how wealth and power comes and goes.

If you wanna understand what's coming at you, you need to understand how money and credit work.

Here's what Ray taught me about money and credit.

Almost all entities, people, companies, governments, have money that comes in, which is called revenue, and money that goes out, which is called expenses.

If the money that comes in is greater than the money that goes out, they end up with a net income.

If they have a net income, which is called profit, their savings go up.

If they spend more than their income, they have a net loss.

They can deal with the net loss by borrowing money, or if they have more things of value, called assets, than debts, they can sell some of their assets.

- But now I sell to you, madam, for 97 million.

(audience applauding) 97, thank you.

- [Burt] There were quite a few big names in the bankruptcy group.

(doors clanging) Lots of toys, but no money.

Now I know how to dress for a bankruptcy hearing.

The vest is essential.

Makes you look like someday you might be profitable again.

(exciting old fashioned music) - [Announcer 2] Your Texaco dealer not only promises to check the things everyone ought to, he'll double check, too.

- [Burt] Somebody should have checked Texaco's balance sheet.

- I have a principle.

If you worry, you don't have to worry.

And if you don't worry, you need to worry.

(Burt laughing) Okay?

- Yes, - Because- - I like that.

Well, let me make sure I have it right.

If you worry- - You don't have to worry.

- Don't have to worry.

But if you don't worry, - [Both] You need to worry.

- Right?

- Okay.

- And because, if we worry about this, these things, then they will, we will have a compelling necessity to deal with them well, because if we worry about them, bringing those worries, then we will, and we realize how bad it can be, then we will have a necessity to make sure that that doesn't happen.

But if we don't worry about these things, if we don't worry about how much debt and money that we're creating, or what the internal conflicts are gonna be like, or what the external conflicts are gonna be like, I think then we need to worry.

- Worry.

- Because that's a scary thought.

(bright exciting music) The lessons that we learned from these patterns of history are to, you know, they're fundamental to take care of the basics, to educate your population well, to be civil with each other, so that you can be productive, to earn more than you spend, and to be good with each other so that you have a harmonious, albeit competitive environment where the common good is more important than the selfishness that leads you to fight.

- Most people think there is a fixed amount of money and credit, but that's not the case.

Money and credit can easily be created by the central banks.

When the central banks make lots of money and credit available, it gives everyone a chance to spend more.

If you spend more money, and take advantage of more credit, goods and services become more expensive.

Money is something you can exchange for something else.

And almost every society has developed some form of money.

In China during the Shang Dynasty, money came in the form of a bell.

The ancient Greeks used a coin with the image of a goddess.

And there's the story that in 1626, Dutch settlers purchased the island of Manhattan for a handful of glass beads.

The story is supposed to make the Dutch look smart.

What really happened is the Dutch bought the island for kettles and iron and cloth, and they bought it from the Canarsee Indians who lived in what is now Brooklyn.

And they loved selling it to the Dutch, because it didn't belong to them.

It belonged to a separate tribe.

And so the ownership of the island was challenged in the courts, and the Dutch had to pay twice.

Well, that's how money works.

And to make sure I do not go over budget, I am bringing this program to its conclusion.

I hope you enjoyed it, and I hope you will join us next time right here on your local PBS station.

(bright exciting music) My conversation with Ray ran about two hours.

If you'd like to see our entire talk, go to burtwolf.com.

- [President Kennedy] We choose to go to the moon in this decade, and do the other things, not because they are easy, but because they are hard, because that goal will serve to organize and measure the best of our energies and skills, because that challenge is one that we're willing to accept, one we are unwilling to postpone - [Narrator] "Travels and Traditions" with Burt Wolf is brought to you by Swiss International Airlines.

Flying to over 70 worldwide locations.

Truly Swiss made.

Swiss International Airlines.

And by the BMW European Delivery Program, a way to experience the roads that BMW was made to drive.

BMW European Delivery Program.

And by the Cygnet Foundation, raising funds for those in need through art related initiatives, contributions to UNICEF, and animal welfare organizations.

The Cygnet Foundation.

(soft music)