Ray Dalio Warned Us: Are We in the Last Stage of the U.S. Economic Cycle?

In his book Principles for Dealing with the Changing World Order, investor and author Ray Dalio outlines a theory of long-term cycles that shape the rise and decline of nations. Drawing from over 500 years of historical data, Dalio identifies a repeating pattern in which dominant powers move through a recognizable set of economic and geopolitical stages. These include phases of strong productivity, wealth creation, debt accumulation, internal conflict, and ultimately, diminished influence. As the United States grapples with economic and political challenges in 2025, some of these stages appear relevant to today’s environment.

One area of concern is the rising national debt. As of early 2025, the U.S. federal debt stands at approximately $34.9 trillion, with annual interest payments projected to exceed $1 trillion in the next few years. According to the Congressional Budget Office, federal debt held by the public is expected to reach 109% of GDP by 2035. In Dalio’s model, large debt burdens often limit a country’s ability to invest in future growth and can lead to greater dependence on central bank intervention.

Another trend drawing attention is the evolving role of the U.S. dollar in global markets. While the dollar remains the dominant reserve currency, a number of countries have increased efforts to conduct trade in other currencies. For instance, China, Brazil, and Russia have explored bilateral trade agreements using non-dollar settlements. Some central banks have also adjusted their holdings, reducing exposure to U.S. Treasuries and increasing allocations to gold and other assets. These shifts, while not signaling an immediate end to dollar dominance, suggest changes in the global financial landscape that merit close monitoring.

Domestically, trust in major institutions remains low. A 2024 Gallup poll found that only 28% of Americans expressed confidence in the federal government to act in the public’s interest. Public debate over issues such as inequality, governance, and access to economic opportunity continues to shape political discourse. Dalio’s framework includes internal division as a potential sign of national strain, particularly when polarization hinders long-term decision-making.

Productivity growth — a key driver of long-term economic performance — has also slowed in recent years. In 2024, U.S. labor productivity increased by just 1.3%, according to the Bureau of Labor Statistics. While technological advancements such as artificial intelligence hold long-term potential, their short-term impact on broad-based productivity remains uncertain.

Dalio notes that late-stage cycles often include signs such as elevated debt levels, slower productivity, reduced global competitiveness, and domestic instability. However, he emphasizes that these are risk indicators, not forecasts. The presence of these trends does not guarantee a specific outcome. Rather, they reflect vulnerabilities that can be addressed through policy, innovation, and institutional reform.

Looking ahead, several key developments could influence the direction of the U.S. economy. Decisions by the Federal Reserve regarding interest rates, the outcome of the 2025 election cycle, global demand for U.S. debt, and the trajectory of geopolitical tensions — particularly in regions such as East Asia and the Middle East — are all likely to play a role.

Dalio’s central message is not one of inevitability, but of historical awareness. His model encourages leaders and policymakers to recognize the patterns of the past and use them to inform decisions today. Whether the U.S. is in the final stage of a long-term cycle or at the beginning of a new phase will depend on how current challenges are addressed and whether institutions adapt to changing circumstances.

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