Veteran hedge fund manager and American investor Ray Dalio is warning about the implications of climbing prices in consumer goods.
In a new interview on Yahoo Finance, Dalio explains why he is significantly concerned about high inflation.
“I’m significantly concerned about it because the amount of money and credit that has to be produced and is budgeted is a large increase and yet if it is not spent, it produces its own problems.
The markets have a sensitivity to that.”
Dalio’s comment comes after the Labor Department’s Consumer Price Index rose by 6.8% in November, the fastest in 39 years. In a LinkedIn post, he says that high inflation can be particularly devastating for those whose money is in fiat.
“Some people make the mistake of thinking that they are getting richer because they are seeing their assets go up in price without seeing how their buying power is being eroded.
The ones most hurt are those who have their money in cash.”
The billionaire, who once told investors to stay away from Bitcoin (BTC) before changing his stance on the flagship cryptocurrency, warns about the US printing too much money without raising its productivity levels.
“Now, when we look from an investor’s point of view or an individual’s point of view, we have to remember that you can’t raise living standards by just creating money and credit, particularly if you don’t raise productivity more than that.
Over the long run, the wealth and buying power you have will be a function of how much you produce. That is because real wealth doesn’t last long and neither do inheritances.
That is why being continuously productive is so important.”
Based on his research on why nations succeed or fail, Dalio says that countries that print too much money typically do not fare well.
“When there’s a financial problem… and the coffers are empty, they print money. And when they print money… it devalues money.
With that, when you have a large gap of people at each other’s throats, then you create a risk of an internal conflict, the risk of some kind of civil war.”
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