Ray Dalio, the billionaire hedge fund manager and founder of Bridgewater Associates, is offering his perspective on the macro forces that are destined to sweep across the globe, reshaping the world in the wake of the coronavirus.
After the tsunami finishes its damage, Dalio believes the way forward to the new normal will be to examine incomes versus balance sheets, and see how the system can fill gaping holes.
In a recent Ted Connect with host Corey Hajim, Dalio predicts that, despite inevitable failures, the system itself will prevail.
“I’m a capitalist. I believe in the system. I believe you can increase the size of the pie and you could divide it well.”
He adds that governments will use the tools provided.
“You have to realize that there is the production of money and credit. And who produces that money and credit?”
By stepping up emergency aid measures that can prop up the economy and patch up the financial markets, Dalio believes relief and recovery will arrive – with a new normal.
“The money and credit comes in different flavors. There is US dollar money and credit. There is euro dollar money and credit. And so, when you look at the world, and you’re seeing it, you’re seeing a situation that is the same – that existed really in the 1930-45 period.
Now we’re seeing the production of a lot of debt, a lot of borrowing by the government. We’re seeing zero interest rates, and not the traditional kind of monetary policy, but the producing of a lot money and credit.
So the Federal Reserve is buying the Treasury’s debt and the Treasury is getting that money to mostly Americans in some imperfect but remarkably large way. And the Europeans are doing the same in their way.”
For many people in other parts of the world, however, where governments are dependent on US dollars, the money printing will rescue some while not helping others. As more debt is created without a way to “fill the holes” and repay those debts, disparities will set up a new world and establish its biggest challenge: wealth distribution.
“A lot of the world will not get that money in credit. So there will be a big differentiation as to which entities benefit and which entities don’t. There will be a big collaboration as to how we will deal with that bill and who will end up with what. A big question of wealth distribution and all of that. That’s the big thing that is going to be happening.”
He adds,
“If you’re within that ring of support, how will that bill be divided, and how will we be with each other? I think we’re going to have to reconsider who has what…
I think what you’re going to see is a combination – you’re seeing – of printing money and redistribution. And I think it’ll last … maybe a couple or three years in terms of that process, and then you have a rebuilding.
They’re dealt with with creativity. The greatest force through time is inventiveness. Human inventiveness. Adaptability. So you’re going to see these restructurings happen.”
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