How Countries Go Broke: The Big Cycle

One of the central claims in How Countries Go Broke is that national economies move through recurring and largely predictable cycles. This idea, which Dalio calls the “Big Debt Cycle,” is the structural backbone of the book and the lens through which he interprets economic history. All debt-driven economies follow the same long-term pattern: borrowing expands faster than income, debt burdens accumulate, and eventually repayment becomes unsustainable, triggering a painful deleveraging, or debt reduction, process.

Dalio’s confidence in the predictability of these cycles comes from decades of empirical research and back-testing historical data. He builds on ideas first articulated in his book Principles for Navigating Big Debt Crises but applies them here on a global level, showing how nations—not just companies or individuals—can overextend themselves. In his analysis, major turning points such as the end of the Bretton Woods system in 1971, the 1980s disinflation under Paul Volcker, and the 2008 financial crisis are all milestones in a repeating process of economic expansion, excess, and correction. These events differ in scale and context, but the underlying mechanics remain constant: debt accumulation outpaces economic growth, inflation erodes purchasing power, and governments respond with policy shifts that redistribute wealth, increase socioeconomic gaps, and reset expectations.