Ray Dalio Warns of Ongoing World War, Citing 1938 Analogy

Author: Ray Dalio

Compiled by DeepChain TechFlow

DeepOcean Summary: Ray Dalio, founder of Bridgewater Associates, has published a 23,000-word article warning that the current conflict involving Iran is not isolated but rather marks the early stage of a world war, comparable to the periods of 1913–14 and 1938–39.

Based on 50 years of global macro investment experience and 500 years of historical research, he concludes that the U.S. is overextended (750–800 military bases versus China’s one), alliances are clearly divided, and the Big Cycle has entered step nine, with a probability exceeding 50% of at least one major conflict occurring within the next five years.

Note: This is a condensed version of the original text, highlighting the key arguments and essential data. To read the full content, click the original link.

Main argument: World War has already begun

As a global macro investor with over 50 years of experience, I need to study everything that has influenced markets over the past 500 years. Most people tend to focus on today’s headline-grabbing events—such as what’s happening in Iran—while missing the larger, more significant, and longer-term forces at play. Today’s most critical point: the U.S.-Israel-Iran war is only one part of the world war we are currently in, and this conflict will not end soon.

Although this may sound like hyperbole, there is no denying that we are now in an interconnected world engaged in multiple shooting wars: the Russia-Ukraine-Europe-US conflict; the Israel-Gaza-Lebanon-Syria conflict; the Yemen-Sudan-Saudi Arabia-UAE conflict (also involving Kuwait, Egypt, Jordan, and others); and the US-Israel-Gulf states-Iran conflict. Most of these wars involve nuclear powers, alongside significant non-shooting wars—trade, economic, capital, technological, and geopolitical influence conflicts—in which most nations are involved.

These conflicts together form a classic world war, similar to past "world wars." For example, past "world wars" consisted of interconnected wars that often slid into existence without a clear start date or formal declaration of war. These earlier wars merged into the classic dynamics of a world war affecting all conflicts, just as the wars unfolding today are doing.

Most people take a short-term view, expecting now—and the market is pricing in—that this war won’t last long and that we’ll return to “normal” once it ends. Almost no one is discussing the fact that we are in the early stages of a world war, and this conflict will not end quickly.

It is easy to objectively see how various parties align through indicators such as treaties, formal alliances, United Nations votes, leader statements, and actions. For example, one can observe China allied with Russia, and Russia allied with Iran, North Korea, and Cuba—a bloc that largely opposes the United States, Ukraine (aligned with most European nations), Israel, Gulf Cooperation Council countries, Japan, and Australia.

These alliances are crucial when imagining the situations of relevant participants. For example, although some claim China is particularly harmed by the closure of the Strait of Hormuz, this is incorrect, as China’s mutual support relationship with Iran could ensure oil shipments reach China, and China’s relationship with Russia would guarantee oil supplies from Russia. China also has substantial alternative energy sources (coal and solar) and large oil reserves (approximately 90–120 days of consumption). It is also noteworthy that China consumes 80–90% of Iran’s oil output, strengthening its leverage in its relationship with Iran. Taken together, China and Russia appear to be the relative economic and geopolitical winners in this conflict.

I have numerous indicators suggesting we are in a Big Cycle phase, during which the monetary order, certain domestic political orders, and the geopolitical world order are collapsing. These indicators point to a transition from a pre-war phase to a conflict phase, broadly analogous to the periods of 1913–14 and 1938–39.

The classic dynamic at this stage is escalation, not de-escalation. The classic sequence of steps leading to major war has occurred many times before and is now unfolding again. Observing today’s events and understanding this classic international order/conflict cycle, it is clear we have progressed to Step 9:

The relative decline of world powers amid the rising economic and military strength of dominant global powers.

2. Economic warfare has significantly increased in the form of economic sanctions and trade blockades.

3. Formation of economic, military, and ideological alliances

4. Proxy wars increase

5. Fiscal pressure, rising deficits, and increasing debt

6. Key industries and supply chains are increasingly controlled by governments.

7. Trade choke points are being weaponized

Powerful new war technologies are being built

9. Conflicts in multiple regions are increasingly occurring simultaneously (we are here now)

10. Within the country, require loyal support for the national leadership.

11. Direct military conflict between major powers

12. Taxes, debt issuance, and money creation increased significantly to fund the war.

13. Ultimately, one side defeats the other and gains uncontested control over the new order.

It is easy to study history and identify overextended empires, develop metrics for their degree of overextension, and see how they suffered as a result. The United States now has 750–800 military bases in 70–80 countries (by comparison, China has only one) and carries costly, vulnerable commitments around the world.

An overextended great power cannot successfully fight on two or more fronts, which will lead to doubts about America’s ability to fight on another front (e.g., in Asia and/or Europe). For instance, it would not be surprising to see issues arise in Asia to test and reveal America’s willingness to respond to challenges. Given America’s extensive commitments in the Middle East and the lack of public support for a war with Iran (amid midterm elections), this is difficult for the United States to achieve.

History shows that the most reliable indicator of which nation may prevail is not which is strongest, but which can endure the most suffering for the longest time.

This is certainly a factor in the U.S.-Iran war, with the president assuring the American public that the war will end in weeks, gas prices will drop, and we will return to normal prosperity.

Although the United States appears to be the world's most powerful nation, it is also the most overextended major power and the weakest in enduring long-term hardship.

Based on my indicators, here is the probability assessment for existing and potential conflicts to erupt or escalate over the next five years:

Iran-U.S.-Israel war: This is an ongoing full-scale war that appears to be escalating.

Ukraine-NATO-Russia direct war: Probability of expansion beyond Ukraine is approximately 30-40%.

Taiwan → U.S.-China war: I estimate the probability of a U.S.-China military conflict at 30–40%, with the highest risk period occurring in 2028.

War with North Korea: The probability of some form of military conflict with North Korea over the next five years is 40–50%.

South China Sea conflict among the Philippines, China, and the United States: The probability of such a conflict over the next five years is approximately 30%.

Considering all these potential conflicts, I believe the probability of at least one occurring over the next five years exceeds 50%.

I’m not saying things will inevitably progress further along this cycle into a full-scale world war. I don’t know what will happen, and I still hope for a peaceful world built on win-win relationships. But it’s important to understand the typical Big Cycle and observe what’s unfolding.