Ray Dalio's Mega Trend

CLICK TO ENLARGE Canada Balance of Trade

Canada's Balance of Trade has been dropping since the Tech Bubble blew out in 2000 

Over 70% of our exports are sold into the U.S. The U.S. Output has been in decline since the end of WW II. China and the Emerging Markets are growing their shares of World Output. According to the charts below the long scale cyclical shift began 60+ years ago.

Meanwhile in Canada we have been engaged in a massive 10 year debt fueled real estate bubble that is in its early phase of collapsing. The boom did create employment and consumption in the 'FIRE' economy but now real estate equity is disappearing and savings are being depleted and highly leveraged Canadians are left with the long term chore of converting their debt into new equity either by repayment or by default. Canadians are going to have to retrain themselves to compete with skilled productive foreign workers; a difficult task to accomplish under the burden of extraordinary long term private sector household debt. A national educational policy would help, but is not likely; as Ray Dalio says:

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"Because these cycles evolve slowly over long time frames – over at least 100+ years – they are imperceptible to most people. They are also essentially irrelevant to rulers who typically have time horizons of a couple of years. As a result, they are not controlled, which is the main reason that they are destined to occur. If human nature was different so that debt growth doesn’t outpace income growth and income growth doesn’t outpace productivity growth, these cycles would be pretty much eliminated."

CLICK TO ENLARGE Output as % of World Output by Ray Dalio June, 2011

Shifts in Relative Wealth and Power Tend to Occur via Very Long Cycles Lasting Five Generations or More.

SOURCE: Why Countries Succeed and Fail Economically Ray Dalio June, 2011 © 2012 Bridgewater Associates, LP

These cycles have occurred through all recorded history going back to Rome and before, though they have become more sophisticated over time. While many influences contribute to these shifts in relative income and power, we believe that the two most powerful of these are 1) the psychology that drives people’s desires to work, borrow and consume and 2) war. Throughout history, these two influences have changed countries’ competitiveness and indebtedness which have caused changes in their relative wealth and power. Since different experiences lead to different psychological biases that lead to different experiences, etc., certain common cause-effect linkages drive the typical cycle. While we will describe what we believe is the typical cycle, of course no cycle is exactly typical.

Now about half of world GDP (53%) is produced in what we now call the “developed world” (US, Europe, Japan, UK, Canada and Australia) with about equal amounts being produced in the US and Europe, and about half of world GDP (47%) is produced in what we now call
“emerging countries” with a bit less than half of that being produced in China and India. Russia produces 3% of global output.

For reasons explained later, we believe that in another 15-20 years emerging countries will produce about 70% of global GDP, China will produce about 25% and India will produce about 12% as they did in the mid-19th century. Russia will produce around 8% as it did in the
mid-19th century.

READ: The complete Ray Dalio analysis here.
Definition: Purchasing Power Parity Adjusted

CLICK TO ENLARGE Share of Real World GDP by Ray Dalio June, 2011