Ray Dalio is the founder of Bridgewater Associates, which is ranked as the largest and best- performing hedge fund in the world. The fund is a global macro hedge fund so it assesses what the world economy is like how various asset classes will change.
In this video he is being interviewed by Charlie Rose. Given the insight and knowledge base Ray Dalio has, I thought it would be best to provide excerpts on what I thought were the key points, as opposed to commenting on the interview (see Zero Hedge for the transcript):
- “We have to understand the big picture is -- there`s a deleveraging. Three big themes: first there’s a deleveraging; secondly we have a problem with monetary and fiscal policies are running out of ammunition; and thirdly we have an issue in terms of people most importantly who are at each other`s throats politically and globally in terms of having a problem resolving those.”
- “[Deleveraging will] take place over ten years. The key is to spread it out as much as you can. Make sure that it`s not disorderly.”
- On the kicking the can down the road and the deficit: “I want to say that I`m very concerned not just of that. I do not believe that we will find a political solution. I think that that would not be -- I`m pessimistic about that… We can`t solve the problem easily because we still have too much debt. But we can move forward in being able to make the best of it. We can spread it out, we can keep orderly we have a situation now in which we have a very severe situation, not only because we have a deleveraging going on, but we have a situation in which monetary policy cannot work the way it worked in the past, that fiscal policy will not be simulative.”
- “Yes, so number one is we have a deleveraging. Now that deleveraging means we`re going to have more debt problems. You`re going to see -- no matter what is solved in Europe you will have a deleveraging. Banks will lend less and lending less will mean a contraction. That`s -- that is what I believe is the case, we should talk about whether or not that is the case. Thoughtful people should discuss that.”
- “We have a debt problem in Europe. You can either transfer the money from one rich country to a poor country [or] you can print the money… Or you can write them down. Those are the choices. Hair cut.”
- “The number one principle at our place is that if something doesn`t make sense to you, you have the right to explore it, to see if it makes sense.”
- “When looking at China, China because they can`t raise interest rates because of their existing monetary policy, is that they can`t control credit growth in the normal ways that we control credit growth. So there`s a credit bubble emerging there and as -- in other words there`s a quality of lending and it`s bypassing the credit system.”
- “We don`t have the ability to have the same effect of monetary policy as we did before because a central bank -- it can buy a bond. It can -- therefore buy the bond. It gives that money to somebody who sold the bond and they were going to buy something like a bond. They`re -- the -- the getting it in the hands of somebody who spends it on cars and houses who really owes probably too much in debt is not an easy thing to do for monetary policy. So monetary policy is not as effective and then we have this social tension.”
- “We should be able to grow at a rate that`s comparable to our income growth if we are -- if we keep orderly and we -- and we work this through and everything is orderly. That means something between like 1.5 percent or 2 percent… The problem with the 2 percent vicinity is that the employment rate remains the same or can trend higher. That produces social pressures, that produces tension which itself means that you can have a situation analogous to that which is existing in Greece and more social pressure you create the more tension that is existing and emerging in various ways, not just a Wall Street piece. But it`s existing in Spain… If we have disruption… and we can`t have fiscal stimulation and you have a problem of what do you do -- you can`t recapitalize the banks. I mean if you should happen to need to recapitalize the banks you can`t have a TARP program again… Politically not feasible.”
- On being optimistic or pessimistic: I suppose I`m -- if I was -- I`m concerned. I think it`s a test of us. It`s a test of us in our society. It`s a test of us.
