Ray Dalio Explains Why 2021’s Economy Is Worse Than 2008

Speaker 1: History has taught us these things. I’ve studied the last 500 years of history and cycles, and these things repeat over and over again large wealth gaps with large values gaps at the same time as there’s a lot of debt and there’s an economic downturn produces conflict and vulnerability. And that will be with us unless the economy is good for most people.

Speaker 2: Ray D’Alessio, 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 the stock market. And today in this current market, Dalio sees a number of flaws that could bring it down. Now, the first thing that he mentions was the wealth gap. Now, this graph is slightly old, but it shows you what Dalio is talking about. The gap between the rich and the poor is widening. Basically, ever since that 1987 mark where the economic boom took place, even since the pandemic where a lot of people have lost jobs and gotten poorer. The 10 richest billionaires have gained a further five hundred and forty billion dollars combined and wealth over this period. Now, this has caused tension between the rich and the poor, and it’s one of the factors that makes the system shaky. Second, 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. There’s no in between you, either Democrats or Republican. And we don’t want to hear what the other side has to say in this causes more friction. And lastly, you mix these two things with 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 us, the national debt that’s above twenty seven trillion dollars, that is more than the entire amounts of total GDP produced in a given year. So if you take all goods and services produced in 2020 and you spent it’s all on paying off 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.

Speaker 1: What I’m really concerned about is that 2008 represented what we have as a worse situation than two thousand of eight now regarding the finances. So if you look at history and repeat over periods of time, there is the creation of money and debt to get people to get buying power. But that is being produced by central banks that print that money because they can’t finance the debt any other way. And that particular dynamic and the extension of it, which is repeated out in time that if you like, I’ll explain a little bit more of that is the big concern.

Speaker 2: So you’ve got the central bank, a.k.a. 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 they have to 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 profits and paying more taxes and using that to pay off the debts, not simply through the printing of money. Which brings in a whole list of concerns.

Speaker 1: So there’s a lot of money sloshing around. But if you think about it, the wave of financial assets and we talk bonds and and and debt as alike is believed to be, it gives buying power. But it’s also believed to be that one could sell one’s bonds and assets and buy goods and services with that. But the amount that exists out there that are claims is far greater than would be allowed to happen. So there’s a financial situation which is deeply of concern to me. And to some extent, it’s it provides the liquidity for some of these things to happen. But the things that are happening here other than being reflective of the. Quiddity are really just part of this bigger problem, I think.

Speaker 2: So these bonds issued by whether it’s corporations or the governments, it’s allowing institutions to go out and buy things with the money that they get from the bonds. This, in turn, does help the economy because it’s through these bonds. That money is injected into the economy, 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.

Speaker 1: This has happened throughout history. You can go back thousands of years and you see the pattern. And that pattern is not a pattern of self, of good finance. It risks the dollar. It risks that the possibility that that won’t be a good store hold of wealth, those those bonds. And that’s not good sound finances. So one should not delude oneself into believing that because interest rates are low, that that that’s not a problem. I think it’ll be a problem. I think one of the most important things to consider, too, is, is that money that’s going to be expended also going to be productive in terms of producing goods and services and so on in its way. I don’t think we’re paying enough attention to productivity either. So I would I’m just a mechanic looking at how the machine works. And my definition of the machine is that it’s very concerning.

Speaker 2: So if we take a look at this machine, there’s a whole lot of kinks and the way it’s turning right now, first of all, people assume that the USA will remain the world’s reserve currency. This is not necessarily the case. The dollar is getting weakened. The more free money that is given out and the more uncertain economic principles that are being used. Look at the US dollar compared to the Chinese yuan over the past year, significantly weakened the US dollar compared to the UK pound. Again, it’s the same story. The U.S. dollar compared to the Australian dollar. That’s the same thing over and over again. The dollar’s been weakened a lot lately. And don’t fool yourself in thinking that the US could not lose its reserve currency status. It can if unsound economic methods continue to be used.

Speaker 1: I think the United States has gotten used to being the world’s reserve currency, which meant that they think that whatever we can sell the rest of the world, the world will buy. And we’re not subject to constraints or that dynamic. So that concerns me a bit.

Speaker 2: And these economic conditions that we’re currently in, they remind dallier most of the 1930s. Remember, Thalia’s and a historian through and through, and he studied economic history over the past 500 or so years. You can see that with all of his LinkedIn articles and the research that he’s put on the Internet. So for him to say that the way things currently look in 2021 are similar to the 1930s, I think it’s concerning. Now, let’s see exactly what he said.

Speaker 1: The three big factors are this financial dynamic that we’re talking about. The second is the polarity that exists in wealth, values and politics, which is extreme. You might look at statistics and I go back and you would have to go back to 1900 to find something like this. And then we have the rising of a great power, China, to challenge an existing great power. Those three factors, the financial factor, the wealth gap and political factor and the rise of a great power. The last time those things happened were in the 1930s.

Speaker 2: So the rise of China, that’s an interesting one, because it now means that the USA has competition for the world’s leading superpower status and the same goes for the world’s reserve currency. You know, even looking at this graph, we can say that when it comes to the economy, China’s growing a lot faster. You know, that’s six or seven per cent compared to two 2.5 per cent. China’s almost triple that of the states. China also has four times the population compared to the USA, one point four billion compared to transgene, 30 million. Looking here, they have four times less of a deficit in the USA as well as to. Times less government debt, so they definitely have their share of economic statistics in their favor to make them compete with the USA. In fact, some economists are saying that by 2028, as soon as that, China will overtake the USA as the world’s largest economy, partly due to the effects of the pandemic. So this rise of China, along with the wealth gap, the values gap, the debt in the system, they all combine to make the market and the economy balancing on unsteady grounds, not like 2008, but more like the 1930s, as Dalio says. And I don’t know how good your history is, but the 1930s wasn’t exactly the most fun period to be an investor or just anyone really. You know, we had that big crash and it took a long time for the economy to recover and years for people to get back into some form of employment. And Dalio is not necessarily saying these things so that everyone panics, but they are conditions that we all need to be made aware of. It’s so important to go back through history and learn from it, because if you don’t learn from it as the saying goes, you are doomed to repeat it.

Leave a comment

Your email address will not be published. Required fields are marked *