How Countries Go Broke: The Big Cycle

The U.S. government and its central bank serve as Dalio’s central case study in the modern debt cycle. As the issuer of the world’s dominant reserve currency, the United States illustrates both the privileges and perils of monetary hegemony. Dalio portrays the U.S. as the latest empire in a recurring historical sequence, following the Dutch and British before it. He examines how massive fiscal deficits, political polarization, and rising debt-service costs have placed the country in a late-stage “Big Cycle” phase characterized by financial strain and internal conflict.

The Federal Reserve plays a dual role as both the guardian and enabler of this cycle. Its use of quantitative easing and near-zero interest rates postponed crisis after 2008, but at the cost of inflating asset prices and widening inequality. Dalio highlights this tension between stabilization and risk, arguing that the Fed’s current subordination to fiscal needs—a condition he calls “fiscal dominance”—marks the beginning of monetary decline. Together, the U.S. government and Fed exemplify how great powers erode from within when debt, politics, and social divisions converge.