My Review of Ray Dalio's "How Countries Go Broke: The Big Cycle"

 Paying the Piper

Ray Dalio, the founder of Bridgewater Associates, which became the world’s largest macro hedge fund, has written an important book on the inexorable reality that accumulated debts have to be extinguished one way or another. He utilizes a host of international examples and aside from the U.S. he focuses in on Japan and China. No matter the country, the piper has to be paid. Dalio’s big cycle lasts approximately 80 years, and it is in many ways similar to the long cycles discussed in Neil Howe’s “The Fourth Turning.” (See: Shulmaven: My Review* of Neil Howe's "The Fourth Turning is Here: What the Seasons of History......" ) It seems that we are on the precipice of Dalio’s big cycle joining  the crisis point  of Howe’s generational cycle. If that is the case, the turbulent time we are now living in is only in its early stages.

 

Dalio’s debt/credit/economy cycle big cycle is made up of a series of short cycles where credit expands and contracts. However, overtime debt increasingly accumulates because it does not generate the revenue needed to service it. The monetary authorities accommodate the increase in debt by going from MP0 where money is tied to a fixed standard, like gold to MP1 where policy is tied to a policy rate to MP2 where through quantitative easing money is printed. At the end of the day when the debt can no longer be serviced at reasonable interest rate, the debt is either directly repudiated or inflated away in order to deleverage the economy. If the debt is not denominated in local currency, it will be repudiated.

 

Overlapping the credit cycle are two other cycles and exogenous events such as acts of nature and the introduction of major innovations that spur growth. The cycles are an internal political cycle evolving around order/disorder and an external cycle similarly revolving around order/disorder. Today the confluence of the big credit cycle with disorder in both internally and externally means Howe’s fourth turning is upon us. What can mitigate this eventuality or make things worse will be the impact of innovative artificial intelligence on our society.

 

Dalio’s solution to the big cycle calls for reducing the federal deficit as a share of GDP from the current 6% to 3% by increasing taxes, lowering spending and lower interest rates. Similar to the 1990’s deficit reduction, if credible, would work to lower interest rates. Some of these nostrums sound similar to what the Trumpies are arguing, except the part about tax increase, tariffs aside. The Trump way of lowering the debt/GDP ratio relies heavily on much lower long-term interest rates that would bring with it other issues.

 

Dalio is clearly worried, and he makes a compelling case to be worried. My criticism of the book is that although he highlights his main points in bold, it still is way to repetitive and because I read the book on my Kindle, the numerous charts were too difficult to read. I therefore would recommend the hard copy.

Havana on the Hudson - Part 2

The Democrats had a great election night winning in New Jersey, Virginia, California, Pennsylvania and Georgia; Donald Trump and the Republicans had a terrible night as voters, especially Latinos, suffered from buyers’ remorse over their votes in 2024; and New York City, especially its large Jewish community, had a horrible night with the election Zohran Mamdani, the antisemitic socialist as mayor. With Mamdani’s plans to build socialism in New York, the city is now further down the road to becoming Havana on the Hudson. (See: https://shulmaven.blogspot.com/2025/06/havana-on-hudson.html )

 

Mamdani plans called for a rent freeze, a massive public housing program, free childcare, free buses, city owned grocery stores, handcuffing the police, $30/hour minimum wage, and much higher taxes on businesses and high-income New Yorkers. For much of this he needs legislative action from Albany. Although most believe that action will not be forthcoming, you can’t count on the wimpy Democrats on holding firm against him. They could very well cave.

 

Mamdani’s program more than anything else is focused on reducing New York’s high rents. Building more apartments will certainly help, but that will not bring relief in the short run, and a rent freeze will actually raise rents on city’s non-rent-controlled apartments. Indeed, the only way Mamdani could lower rents would be for the city to return to hellhole it was in the 1970’s with crime running rampant. Although Mamdani said he would reappoint Jessica Tisch, the highly regarded police commissioner, they have yet to speak and one wonders what Tisch’s conditions would be for her to stay. In a straw in the wind Fire Commissioner Robert Tucker resigned today over Mamdani’s severe anti-Israel stance.

 

For those Jews who are complacent about Mamdani, I would warn them the Mamdani is anti-Israel to his core. Anti-Zionism is what got him into politics in the first place. My question is with Mamdani as mayor, who will protect the Jewish community from street and subway attacks and the defacement of synagogues which actually started last night?

 

Mamdani is no joke, this TikTok Jacobin will have real power and for those with the means it might just make sense to leave the city before it is too late.

Something Investors are not Thinking About

Although there has been recent commentary about the sustainability of corporate profit margins with the stock market bears arguing that the high margins now being reported will soon regress to the mean and the bulls arguing that, at least for now, margins will remain on a high plateau; there has not been any commentary on the sustainability of the historically low corporate tax regime of the past eight years.  Just to note the the high profit margin argument of the bulls is being used to discredit the near record high of the Shiller cyclically adjusted price-earnings ratio. (See:https://shulmaven.blogspot.com/2025/06/my-ucla-anderson-forecast-presentation.html )  

What few people realize that the current corporate tax rate of 21% is from an historical point of view unusually low. Indeed the 21% rate inaugurated in 2017 is the lowest corporate tax rate since 1939. For example, throughout much of the 1950's to the early 1960's the corporate tax rate was 52% (Not a typo) and from 1993-2017 it stood at 35%. Why is this important? 

In an era where most observers believe the federal deficit  now running at 6% of GDP is not sustainable in the long run, something is going to have to give on the tax front. Although no change is likely until 2029, a future administration could very well find the corporate income tax as a tempting target to raise revenue. Indeed the higher corporate margins go, the easier it will be politically  to increase the tax rate. 

Admittedly this is not an issue for today, but it could very well come to the fore in a few years.

My Review of Andrew Ross Sorkin's "1929"

 The Great Crash and its Aftermath

Andrew Ross Sorkin of CNBC, DealBook, and “Too Big to Fail” fame has written a riveting history the 1929 stock market crash and its aftermath through the eyes of many of its key participants. His writing style puts you in the room with the leading players of the day as they experience the exuberance of the boom and then grapple with grinding bear market that followed. It would have helped if there were an annotated chart of the Dow Jones Industrial average from 1929-1933.

His leading players are “Sunshine” Charlie Mitchell, president the National City Bank and its securities affiliate the leading underwriter of new issues in the 1920’s; Thomas Lamont, the de facto head of J.P. Morgan; Jack Morgan, J.P.’s son and nominal head of the bank; Russell Leffingwell,  a Morgan partner and a founder of the Council on Foreign Relations; Albert Wiggins, president of the Chase National Bank; Jesse Livermore, legendary trader who made $100 million in the crash; Owen Young, president of General Electric and author of the Young Plan for German reparations; John Jacob Raskob, General Motors director, chairman of the Democratic National Committee and developer of the Empire State Building; William Crapo Durant, General Motors founder and leading speculator; Senator  Carter Glass, coauthor of the Federal Reserve Act of 1913 and the Glass-Steagall Act of 1933 and a leading critic of Wall Street speculation;  and Ferdinand Pecora, counsel to the Senate Banking Committee taking on the WASP establishment by investigating Wall Street. We also have cameo appearances of the financier and advisor to presidents Bernard Baruch, and Winston Churchill who was out of government and was speculating in the U.S. stock market, and David Sarnoff, president of RCA, the NVIDIA of its day.

 

The stock market of the 1920’s was the wild west where “pump and dump” pools operated, and insider trading was legal. It was not unheard of for insiders and their friends to receive newly issued stock at a discount from the official offering price. All the while margin was freely available where stocks could be purchased with only 10% of the cash payable upfront. The availability of margin was funded by the call money market at interest rates of up to 20%. It was the call money market that sucked in funds from all over the country, and for that matter the world, to earn high returns. However, this form of leverage could be withdrawn on moment’s notice thereby triggering a liquidity squeeze.

 

I learned a few interesting factoids to comment on. I didn’t know that David Sarnoff was actively involved in the Young Plan negotiations. Perhaps more interesting, I didn’t know that Mitchell of National City and Wiggins of Chase actively lobbied Carter Glass to include J.P. Morgan, as a private bank, in the separation of commercial banking from investment banking. It seems that Glass was close to Morgan partners Lamont and Leffingwell. Thus, any allusion to Glass being the Elizabeth Warren of his day hardly rings true.

 

As someone who has read every front page of The New York Times from August 1929 to March 1933 and has read widely on the subject of the crash and its aftermath, I have a few issues to raise with Sorkin. The first is that the depression was not an inevitable result of the crash. It occurred against the backdrop of inept monetary policy followed by the Fed and more important it was caused by the imbalances caused by World War One rubbing against the rigidities of the gold standard. Thus, the root causes were not domestic in origin as Roosevelt argued, but rather international in origin as Hoover argued. Thus it was no coincidence that the Dow Jones Industrial Average bottomed in June 1932 just when the Lausanne Conference was agreeing to drastic cuts in German reparations payments and the suspension of payments on inter-allied debts. 

 

Sorkin should have read Tobias Straumann’s “1931” where he quoted the 1932 Annual Report from the Bank of International Settlements as follows: “In the circumstance of the German problem- which is largely responsible for the growing financial paralysis of the world – call for concerted action Governments alone can take.”  (See: https://shulmaven.blogspot.com/2019/07/my-amazon-review-of-tobias-straumanns.html ) It was the very Young Plan that Lamont helped to negotiate that made Hitler. His attacks on the Young Plan which stretched out the German reparations to schedule to 1989 and made the payments more rigid, was one of Hitler’s leading campaign issues that gave his Nazi Party 19% of the vote. The prospect of future Nazi victories led to a capital flight from Germany and Austria.

 

I wish Sorkin would have spent more time on what his players were doing in June 1930 when Hoover signed the Smoot-Hawley Tariff Act. The day after Hoover announced that he would sign the bill the Dow Jones Industrial Average plunged 8%, its worst day of 1930.  ( See: https://shulmaven.blogspot.com/2025/04/a-broken-stock-market-and-broken-trust.html ) The Times highlighted the new tariff regime would make it harder for Germany to make it reparations payments and for Britain and France to pay its war debt to America.

 

I also wish that Sorkin were in the room when Britain devalued the Pound and left the gold standard in September 1931, the worst month in stock market history. In response to the fears of a gold outflow, the Fed raised its discount rate from 1.5% to 3.5%. That action was a dagger into the heart of the economy.

 

Thus, in my opinion, the triggers of the Great Depression came in the form of a three-act play. The first was the stock market crash of October 1929, and the second was the signing of the Smoot -Hawley Tariff Act in June 1930. The third and final act occurred when the Fed raised the discount rate in September 1931.

 

My last quibble is that Sorkin used the wrong source for his comments on the interregnum period between the Hoover and Roosevelt administrations. He cites  Eric Rauchway’s “Winter War” which is way too biased against Hoover. (See: Shulmaven: My Amazon Review of Eric Rauchway's "Winter War: "Hoover, Roosevelt and the First Clash Over The New Deal" ) A more balanced account by  Jonathan Alter, a serious liberal, in his “Defining Moment” noted that it was  Hoover treasury department officials, namely Ogden Mills and Arthur Ballentine whose drafts ultimately became  the Emergency Banking Act in March 1933 thereby ending the third banking crisis of the depression.

 

All quibbles aside, Andrew Ross Sorkin has given us a new take on the elements and personalities involved in the crash and its aftermath. Can it happen again? In my opinion, yes. All it takes is human greed combined with lots of leverage accompanied by institutional rigidities and incompetent regulators.

Rage and Silence From the So-Called Peace Camp

 While most of the world looked hopefully on the ceasefire between Israel and Hamas, two of the most vocal callers for a ceasefire reacted either with rage or silence. (See: https://shulmaven.blogspot.com/2025/10/free-at-last-now-hard-part-begins.html ) Students for Justice in Palestine (SJP) applauded Hamas' slaughter of innocent Palestinians and further encouraged them to remain armed. Hopefully their fellow travelers in the West will realize that they have been conned and that the western media will wake up to the fact that Hamas has no compunction about killing their fellow Palestinians. 

Instead of raging at the ceasefire, Jewish Voice for Peace (JVP) has been remarkably silent. Recall that this organization attempted to shutdown Grand Central Station in the name of a ceasefire. Well, they got their ceasefire. Then why the silence? The answer is simple. JVP is fundamentally a left wing group seeking the destruction of Israel as a  Jewish state. Israel winning is anathema to them. They care more about their solidarity with the Left then with the Jewish people and it why they will remain silent about Hamas killing Palestinians.  Shame on them.

Free at Last: Now the Hard Part Begins

After two long years Hamas has finally freed the last twenty live hostages left in the dungeons of Gaza. With the captives being redeemed and an Israeli-Hamas cease fire in place, there is much to celebrate. Nevertheless, we should not lose sight of the very difficult tasks ahead. (See: https://shulmaven.blogspot.com/2025/10/the-israel-hamas-war-is-peace-at-hand.html )

As I write this Hamas gunmen are slaughtering their local Palestinian opponents. This has to stop and if Gaza is to be rebuilt by the proposed middle eastern consortium, Hamas will have to be disarmed. That will not be easy and what Arab state will allow their soldiers to be killed in a Gaza peace keeping mission?

In order for this to work is for the United States, Egypt, Qatar, and Türkiye have to put constant pressure on both Hamas and Israel to maintain the momentum of today. There are few hopeful signs. It appears that there is a new openness to expanding the Abraham Accords and that Indonesia, the country with the largest Muslim population, is prepared to commit troops. President Trump and his team have created the framework for a new beginning in the middle east; let us hope they will have the patience to follow through in the days to come.

My Review of Yaakov Katz's and Amir Bohbot's "While Israel Slept"

Confirmation Bias

Veteran Israeli journalists Yaakov Katz and Amir Bohbot have put together a well-sourced and deeply researched indictment of the vaunted Israeli intelligence services and Prime minister Binyamin Netanyahu in their failure to anticipate the deadly Hamas attack of October 7, 2023. In the bluntest of terms, they were guilty of confirmation bias in which their tunnel vision refused to see the signs of the coming attack by Hamas.

 

They thought Hamas was interested in growing the Gaza economy and the intelligence services had their attention centered on Iran, Hezbollah, and the West Bank. They refused to believe reports coming from the Gaza watchers on the border and, in fact, they did not have a single spy on the ground in Gaza. They relied too much on technical superiority, rather than human intelligence.

 

Hamas, on the other hand had excellent intelligence on what the Israeli’s were up to. They know where the cameras and sensors were, and they knew down to the minute details where troops were stationed and where the safe rooms of the nearby kibbutzim were located.

 

Katz and Bohbot pull no punches in describing the ideology of Hamas. Simply put, Hamas is a terrorist organization dedicated to the destruction of Israel. They do not believe in the so-called two state solution. They believe on one state that does not include the Jews of Israel. Why gullible westerners support such barbarism will be the topic of another blog.

 

The authors highlight the huge military buildup that was taking place in Gaza. Starting with the Morsi regime in Egypt which smuggled in weapons manufacturing and construction equipment in 2012. That enabled Hamas to produce heavy weapon and to construct a labyrinth of tunnels underneath Gaza. Israel has no idea as to the full extent of Hamas’ underground city.

Indeed, Hamas war using western and Arab aid to build a war machine. Further they invested some of that aid into a host of front companies to generate income. One of those companies was actually listed on the Istanbul Stock Exchange.

 

Nevertheless, there were warnings. In 2016 the defense minister urged a pre-emptive strike on Gaza. That was turned down out fear of high casualties. Israel’s 2014 incursion into Gaza did not go as well as planned with casualties far higher than expected.

 

Among the many recommendations Katz and Bohbot recommend are:

·      * Establish a Director of National Intelligence to coordinate the various security agencies. I would also create a Team B to critique the DNI conclusions.

·     *  Create a Department of Informational Warfare. Hamas propaganda has been running rings around Israel.

·      *  Change the defense posture from deterrence to active defense.

 

To conclude I believe that this book should at least be a starting point for the coming investigation of Israel’s intelligence failures. The witnesses are in the book. Netanyahu and his cabinet will have a tough time in defending themselves from this indictment.