“The world has gone mad and the system is broken.”
So says Ray Dalio, the billionaire financier and founding father of Bridgewater Associates, the biggest hedge fund on the earth with $160 billion in property.
There are a number of issues, together with an overzealous lending market, a rising mountain of presidency debt and a widening divide between the wealthy and poor that is turning into extra tense, he says.
“This set of circumstances is unsustainable and certainly can no longer be pushed as it has been pushed since 2008. That is why I believe that the world is approaching a big paradigm shift,” Dalio wrote in a LinkedIn post revealed Tuesday.
Dalio, 70 and worth almost $19 billion, doesn’t elucidate what that paradigm shift shall be in his submit, however he has been outspoken in his criticism of the very capitalist system that made him profitable. In an interview with CBS’ “60 Minutes” in July, Dalio stated the U.S. economy must change or there shall be a “conflict” between the wealthy and the poor. And in January, he said “capitalism basically is not working for the majority of people.”
In his current LinkedIn submit, Dalio zeroed in on the best way cash is flowing by means of the economic system.
First, says Dalio, we’re in a scenario often known as “pushing on a string.” That could be a state of affairs the place central banks (just like the Federal Reserve in america) are struggling to get their financial insurance policies to truly stimulate elevated spending, in accordance with Dalio’s ebook, “Principles for Navigating Big Debt Crises,” which he references within the LinkedIn submit. That in flip results in “low growth and low returns on assets,” he says within the ebook and echoes within the submit. “[T]he prices of financial assets have gone way up and the future expected returns have gone way down, while economic growth and inflation remain sluggish,” Dalio writes on LinkedIn. “Those big price rises and the resulting low expected returns are not just true for bonds; they are equally true for equities, private equity, and venture capital….”
Within the enterprise capital and start-up house, this implies “more companies than at any time since the dot-com bubble don’t have to make profits or even have clear paths to making profits to sell their stock because they can instead sell their dreams to those investors who are flush with money and borrowing power,” Dalio says.
On the identical time, the U.S. authorities is out of cash — and nonetheless spending, as deficits proceed to develop. Governments must fund obligations like pensions and healthcare, Dalio factors out.
“Since there isn’t enough money … there will likely be an ugly battle to determine how much of the gap will be bridged by 1) cutting benefits, 2) raising taxes, and 3) printing money…” Dalio writes.
“They are promises that have to be paid — they will either be paid by higher taxes or they’ll be not paid and defaulted on,” Dalio told CNBC at the Greenwich Economic Forum on Tuesday. “I don’t think they will be defaulted on. I think by and large, they’re going to be paid, but if they raise taxes too much, then it changes the nature of that economics.”