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There is one question I get more than any other: “Will we have another crisis?” The answer, of course, is yes. But it’s not a Wall Street crisis similar to 2008 that concerns me. I’m worried about something far bigger.
When I wrote “Too Big to Fail,” that phrase was only used in the context of financial institutions. Today, it is used to refer to cities, municipalities, states and countries. If you look at the buildup of debt, that’s the place to keep an eye on.
Unmanageable debt is the match that lights the fire of every crisis. You can have as many bad actors on stage as you want — greedy bankers, inept regulators, conflicted credit rating agencies — but unless there is significant leverage in the system, there’s little danger of a crisis. Our national debt is more than $21 trillion, and it increased a trillion dollars in just six months under Mr. Trump, who rode populist and anti-establishment sentiment to the White House but whose policy choices have largely favored the wealthy.
That’s not the only cause for concern, either. If history tells us the political divisions we have seen since the financial crisis were predictable, then what does history have to say about what comes next?
Mr. Dalio pointed to the chilling of international relationships that happened after the Great Depression as a worrying example of the divisions that can widen when populism fosters protectionism. “We started to have economic tariffs and we started to have back-and-forths of those things,” he said.
He paused for a moment, signaling he didn’t want to contemplate what that later manifested. But he continued, “Which then, 10 years later, led to Pearl Harbor.”
There are, of course, many steps between populism and war. But Mr. Dalio said he saw similarities between the global environment that preceded World War II and the one we see today.
That’s reason enough to never forget this crisis and its lessons.