Ray Dalio he’s the founder of the largest investing hedge fund in the world Bridgewater. Bridgewater has over $150 billion dollars of assets that it invests.
Now the founder, Dalio, is someone that likes to analyze patterns when it comes to investing. And today, in this current market, Dalio see’s a number of flaws that could bring it down.
First thing he mentions was the wealth gap. Now this graph is slightly old, but is shows you what Dalio is talking about. The gap between the rich and the poor is widening. Basically ever since that 1987 mark, where we started to see the economy strengthen!
Even since the pandemic, where a lot of people have lost jobs and gotten poorer, the 10 richest billionaires have gained a further $540 billion combined in wealth over this period. Now this has caused tension between the rich and the poor and it’s one of the factors that makes our system shaky.
2nd he mentions the values gap. This growing divide that we seem to be seeing between the right and the left. You know it’s like no, you’re either trump, or biden, no in-between. You’re either democrat or republican and we don’t want to here from the other side. And this caused more friction.
And lastly you mix these 2 things with the large amounts of debt that we have in the system, and it’s not a good combination we can put it that way.
You know if we take a look at USA’s national debt it’s above $27 trillion dollars. That is more than the entire amount of total gdp produced in a given year. So if you take all good’s and services produced in 2020, and spent it all on paying of debt, you wouldn’t even cover it.
So it’s this along with widening wealth gaps, and values gaps that makes the economy shaky. Potentially even worse than 2008, this is what Dalio says…
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So you’ve got the central bank, aka the fed, who have to print money. They don’t really have a choice. They’ve got debt payments to make, they’ve got to give free money to people who don’t have jobs, and hand out loans to businesses who without it wouldn’t survive.
So normally the right way you should pay off debt, is by actually producing more. You want your businesses to be selling more, being more innovative, making more profit and paying more taxes and using that then paying off debt that way. Not simply through the printing of money which brings a whole list of concerns…
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So these bonds issued by whether it’s corporate bonds, or government bonds is allowing these institutions to go out and buy things. This in turn does help the economy, because it’s through these bonds that money is injected into it.
But it’s not natural. And as Dalio said those claims on those bonds is far greater than what would be allowed to happen. The natural way of growing the economy would just be through producing more and innovation. Not through the endless issuing of bonds…
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So if we take a look at this ‘machine’, there’s a lot of kinks in the way it’s turning right now. First of all people assume that the USA will remain the worlds reserve currency, this is not necessarily the case. The dollar is getting weakened the more free money that is given out and unsound economics that is being used.
– Look at the U.S dollar compared to the Chinese yuan over the past year. Significantly weakened.
– The U.S dollar compared to the U.K pound, again same story.
– The U.S dollar compared to the Australian dollar.
It’s been weakened a lot lately and don’t fool yourself in thinking that the U.S, could not lose it’s reserve currency status. It can if unsound economic methods continue to be used…
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And these economic conditions that we’re currently in, remind Dalio most of the 1930’s.