Bridgewater Associates founder Ray Dalio says that a period of stagflation similar to the one witnessed in the 1970s could be approaching.
In a new interview with David Rubenstein, Dalio addresses the US dollar’s big decline against major currencies this year, saying that it could be foreshadowing an incoming phase of stagflation, which refers to a time of high inflation, high unemployment, and low economic growth.
Dalio says in the end, while the dollar may underperform other currencies, those currencies also won’t be doing well relative to hard assets like gold.
“I think the picture would be some version very similar to the 70s… And the 70s was a period in which there was stagflation. The thing we have to worry about is a stagflationary environment, because all the currencies went down.
So when you were looking at ‘diversification,’ the problems that we’re talking about are not just American problems. We have a significant problem, but they’re European problems, they’re Japanese problems. There are Chinese problems. We’ve lived on promises, to be able to take that debt asset and convert it into money.
And now there’s not enough money to go around, so I would say that when you ask the question, does it devalue in relation to other currencies? Probably, but the other currencies won’t see much of an appreciation. So that’s why I’m saying something like gold will be the better-performing currency.”
The hedge fund legend recently warned that in order to address a looming fiscal crisis, the US government would need to cut spending and raise taxes to lower the annual deficit to gross domestic product (GDP) ratio.
“This printing and devaluing is not good for those holding bonds as a storehold of wealth, and what’s bad for bonds and US credit markets is bad for everyone because the US Treasury market is the backbone of all capital markets, which are the backbones of our economic and social conditions. Unless this path is soon rectified to bring the budget deficit from roughly 7% of GDP to about 3% by making adjustments to spending, taxes, and interest rates, big, painful disruptions will likely occur.”
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