October 21, 2024
“When countries have big internal disorder, it is an opportune moment for opposing countries to aggressively exploit their vulnerabilities.”
-From page 447 ofPrinciples for Dealing with the Changing World Order
Over the next 15 days leading up to the election, I will be sharing my thoughts about how events are transpiring with references to my changing world order template as described in my bookPrinciples for Dealing with the Changing World Order(published in 2021). In today's post, I will look at how the domestic conflict (politics) and the external conflict (geopolitics) forces can relate to each other to create a type of perfect storm.
Relevant Principles:
From page 447:
"History has taught us that when there are leadership transitions and/or weak leadership at the same time that there is big internal conflict, the risk of the enemy making an offensive move should be considered elevated."
From page 51:
"When there is a rising great power that is capable of challenging the existing great power and existing world order, there is a rising risk of great international conflict, especially if there is internal conflict going on within the existing great power. Typically the rising international opponent will seek to exploit this domestic weakness. This is especially risky if the rising international power has built up a comparable military."
The case at hand: With risky US elections coming at the same time the great power conflict between the United States and China is also heating up, new problems with North Korea (sending troops to Ukraine in support of Russia) and the risk of wider war in the Middle East also increasing, my decision-making principles based on history have led me to treat the period ahead as a period of heightened risk. I believe that it is a period of heightened risk because:
I believe that it is a period of heightened risk because:
From page 51:
"Since there is no viable system for peacefully adjudicating international disputes, these conflicts are typically resolved through tests of power."
From page 51:
"As bolder challenges are made, the leading empire is faced with the difficult choice of fighting or retreating. Fighting and losing are the worst, but retreating is bad, too, because it allows the opposition to progress and it shows that one is weak to those other countries that are considering what side to be on."
As you know, I like to measure things and use these measurements as objective indicators. The next chart shows my index of conflict just between the US and China since 1970. It is a factual/objective measure of the increased risks of a conflict between the US and China.
Source: US-China Conflict Gauge, compiled by Ray Dalio (Trades, Portfolio)
From page 76:
"The Prisoner's Dilemma Must Be Solved for Peace to Exist. The prisoner's dilemma is a concept from game theory that explains why, even when the best thing for two parties to do is to cooperate, the logical thing for each to do is to kill the other first. That is because survival is of paramount importance, and while you don't know for certain if your opponent will attack you, you do know that it is in their interest to defeat you before you defeat them. It's for this reason that deadly wars are best avoided by both sides establishing mutually assured protections against existential harms. Exchanging benefits and creating interdependencies that would be intolerable to lose further reduces the risk of conflict."
From page 199:
"It is far too easy to slip into stupid or accidental wars because of a) the prisoner's dilemma, b) a tit-for-tat escalation process, c) the perceived costs of backing down for the declining power, and d) misunderstandings existing when decision making has to be fast. Rival great powers typically find themselves in the prisoner's dilemma; they need to have ways of assuring the other that they won't try to kill them lest the other tries to kill them first. Tit-for-tat escalations are dangerous in that they require each side to escalate or lose what the enemy captured in the last move; it is like a game of chicken—push it too far and there is a head-on crash."
Given these and other symptoms, it appears to me that we are in Stage 5 of the long-term cycle. Stage 5 is the part of the cycle that is just before the (civil or external) war stage. To be clear, I'm not saying that events will take us over the brink into some type of big civil or international war. In fact, the odds are still against it. I have repeatedly seen conflicts brought to the brink and the parties back off from the brink when there is mutually assured destruction as seems to be the case now. However, because this case looks like none that I have seen before and more like those I have studied that have gone over the brink, I am treating this as a period of elevated risk in my positioning. It will certainly be a period during which we will learn a lot.
These views are my own and not necessarily Bridgewater's.
