This article analyzes the 'breakdown of the existing world order' declared at the 2026 Munich Security Conference and the resulting era of 'great power politics' through Ray Dalio's 'Big Cycle' theory. Dalio explains the principles by which international relations are governed by power rather than law, how trade disputes escalate into actual war, and diagnoses the current crisis through the case of World War II. Ultimately, he emphasizes that averting catastrophe requires using power wisely and seeking mutually beneficial relationships.
1. The Collapsed World Order and the Start of 'Stage 6'
At this year's Munich Security Conference, world leaders formalized that the post-1945 world order has effectively ended. The "2026 Security Report," titled "Under Destruction," laid bare this reality. Germany's Chancellor Friedrich Merz and other key figures warned that we've entered a new era where old rules no longer apply.
From Dalio's perspective, we are now in Stage 6 of the 'Big Cycle' -- a period where rules disappear, 'might makes right' prevails, and great powers collide. Between nations, there are no effective police, judges, or prisons. When disputes arise between powerful nations, they don't call lawyers -- they threaten each other, reach deals, or fight. International order follows 'the law of the jungle' far more than international law.
2. Five Types of War and the Cycle of Peace
National conflicts take five forms, typically escalating from bloodless to actual warfare:
- Trade/Economic war: Tariffs and export restrictions targeting an adversary's economy.
- Technology war: Protecting and withholding critical national security technologies.
- Geopolitical war: Conflicts over territory and alliances.
- Capital war: Financial sanctions and capital market access restrictions.
- Military war: Actual use of force with casualties.
Most conflicts begin with the first four. When unresolved and escalating to existential issues, all-out war erupts. European history shows ~150-year cycles alternating between peace and devastating war since the 1500s.
Principles for Avoiding War: Win-Win Strategy
War never goes as planned and produces far worse results than imagined. The most dangerous moments occur when 1) two powers' military capabilities are roughly equal and 2) irreconcilable existential differences exist (as with the current US-China-Taiwan situation).
To achieve more win-win outcomes, you must consider what matters most to your counterpart and yourself, negotiate accordingly, and learn how to exchange those things.
3. Case Study: The Road to World War II
After the 1929 Great Depression, economic suffering led to internal conflicts and the rise of populist, authoritarian, nationalistic leaders like Hitler and Japanese militarists. Economic warfare began roughly a decade before gunfire -- through asset freezes, capital market access denial, and resource embargoes. When economic sanctions hit their limits, military conflict erupted. Nations shifted to wartime economies with government-controlled production, rationing, and massive debt monetization. Defeated nations saw stock markets closed and investor wealth reduced to scraps. During war, only real assets like gold maintained true value.
4. Hot War and Wartime Economics
Once hot war began, every nation converted to wartime economic systems -- government-determined production, prices, and wages; rationing; blocked foreign exchange; and central banks printing money. Stock markets danced to the rhythm of war. Crucially, defeated nations' markets were shuttered, and when reopened, investors' assets were nearly worthless.
5. Conclusion: History Repeats, but the Future Can Be Changed
Every empire rises and falls in an inescapable cycle. But if we maintain productivity, build healthy national systems, and create win-win relationships with competitors, catastrophic outcomes can be avoided.
Have power, respect power, use power wisely.
Using power wisely doesn't mean simply overpowering adversaries with force. Pursuing mutual benefit based on tolerance and trust is the truly wise use of power. If we don't forget history's lessons in this turbulent year of 2026, we can navigate the coming crisis wisely.