Page 27 - Ray Dalio - Principles

Business School. The summer before I started at HBS, I got a
job as a clerk on the floor of the New York Stock Exchange.
By midsummer, the dollar problem began to reach a breaking

point. There were reports that Europeans wouldn’t accept
dollars from American tourists. The global monetary system
was in the process of breaking down, but that wasn’t clear to
me quite yet.

Then, on Sunday, August 15, 1971, President Nixon went
on television to announce that the U.S. would renege on its
promise to allow dollars to be turned in for gold, which led the

dollar to plummet. Since government officials had promised
not to devalue the dollar, I listened with amazement as he
spoke. Instead of addressing the fundamental problems behind
the pressure on the dollar, he continued to blame speculators,
crafting his words to make it sound like he was moving to
support the dollar while his actions were doing just the
opposite. “Floating it,” as Nixon was doing, and then letting it

sink like a stone, looked a lot like a lie to me. Over the
decades since, I’ve repeatedly seen policymakers deliver such
assurances immediately before currency devaluations, so I
learned not to believe government policymakers when they
assure you that they won’t let a currency devaluation happen.
The more strongly they make those assurances, the more

desperate the situation probably is, so the more likely it is that
a devaluation will take place.

As I listened to Nixon speak, I wondered what those
developments meant. Money as we’d known it—a claim check
to get gold—no longer existed. That couldn’t be good. It
seemed clear to me that the era of promise that Kennedy had

personified was unraveling.
Monday morning I walked onto the floor of the exchange

expecting pandemonium. There was pandemonium all right,
but not the sort I expected: Instead of falling, the stock market
jumped about 4 percent, a significant daily gain.

To try to understand what was happening, I spent the rest of
that summer studying past currency devaluations. I learned
that everything that was going on—the currency breaking its

link to gold and devaluing, the stock market soaring in