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Ray Dalio recently released an interview where he spoke about the realities of investing in this current financial environment where we find interest rates nearing zero the first question in this new interview released June 19th is an important one for the future this country and the long-term future of the stock market Dalio takes about two minutes to answer I wanted to show you the full clip because I do believe it's an important message a message that frames the truth about investing in 2020 and Beyond euro bound for quite a while since the global financial crisis but the policy the central banks use the ease more than a decade ago was just the printing of money to buy financial assets in the aftermath of the pandemic we find ourselves once again dealing with the constraints of traditional monetary policy so my question to you is what will easing look like now that interest rates are already low and central bankers have spent a decade buying assets and pushing down risk premiums what you find in studying history is that depressions are mostly debt and liquidity crisis that are dealt with one way or another through easing of monetary policy which changes over a period of time I describe monetary policy one interest rates monetary policy to buy financial assets print money and buy financial assets monetary policy 3 which we are in is the printing of a lot of financial assets by the central bank and then buying government bonds to finance the deficit and getting money in the hands of those who wouldn't have had it through the normal financial system essentially through that coordination in all history so when we go back to the 1800s and so on there is that and so the alleviation will happen in terms of that kind of ease so when we think interest rates are going to hit zero and that therefore depressions last no they don't last because in one form or another and we're seeing it here today that they will be the printing of money now the value of money may not last or they could be depreciated but in the end they always will ease and you will have then that kind of reflection movement and that kind of change so the hitting of a zero interest rate is not a hitting of a floor on the capacity of central banks to ease beyond if you paid attention to value it's clear that we've already hit zero percent interest rates this does not mean there's a floor to the power of central banking the United States Federal Reserve is determined more than ever along with the central banks of the entire world to print their way out of debt this might be a confusing concept to many when we hear about these massive national debt piles totaling trillions and trillions of dollars you may think to yourself how we as a country will ever pay that off the truth of the matter is that those master debt numbers are never meant to be paid off you can hear dr.
Swank Carlin explaining here the environment is such that there is not enough income to finance the debt burdens so the only solution is or default nobody is going to default nobody wants to default so the other solution is simply to print money as much as you can print and even trigger inflation to ease the servicing of the debt when you see such big debts 22 trillion then people think when are they going to repay it never that is not there to be repaid it's not like you going to the bank and you have to repay your debt governments corporations their intention is to never repay the debt keep that in mind whenever you hear about big debt piles so we hear about inflation a lot these days and overall we know it as an economic term that refers to an environment of generally rising prices of goods and services within a particular economy as general prices rise the purchasing power of consumers decreases for an example in 1968 a brand new Ford Mustang g/t costs right around three thousand dollars you may think wow what a steal but you have to consider that in 1968 men wage was $1 in 60 cents an hour this means adjusted for inflation that's saying 1968 Mustang would have cost twenty two thousand one hundred dollars in 2020 so what does this all mean for governments well here is a good example if you're a government with a large amount of debt inflation can actually help you let's say you find yourself as the leader of a country and you decide that printing ten billion dollars to finance some projects is a good idea you sell bonds in order to raise this ten billion would you have a pay date on do ten years in the future things are not looking good five years in so you decide along with the help of your central bank that inflating the currency is actually a good idea no worries about the people and their savings besides who saves anything these days now five years in now you can pay every single one of those bondholders with your foreign reserves converting them into your worthless currency what you just did is inflate the debt away all that borrow money is worth way less in that 10 year time span while your foreign reserves appreciate in value compared to your barrier this is not something that's talked about a lot but it's actually a giant catalyst to many historic world altering events hyperinflation in Germany actually led to World War one we see similar conflicts emerge in other states like Venezuela Lebanon the former Yugoslavia and countless other examples if a government takes inflation too far it can and will ignite conflict and regime change too little and will never pay back its debts the same situation can work for you as a citizen take for example someone living on the coast of Croatia in the former Yugoslavia in 1989 so dealing with uncertainty whatever happens it will be I'll be all right you have to say don't be evicting now on the investing stories for investing motivation so my parents built the house in 1985 they took a mortgage signed a mortgage which was 50% of my father's salary from 1985 to 2017 it was 42 years of mortgage my father said he wrote his death sentence he signed his death sentence a few years later the bank called in if they can repay the whole mortgage so 27 years to go 28 years left with one goal and they paid 135 with Frank so that's about 135 dollars for the whole mortgage that's hyperinflation on a fixed loan so that's what's going on now a lot of money printing inflation so again an opportunity an opportunity to build something and then also take advantage of the situation the estimated returns for that is 100x probably over 40 years then the war my parents-in-law so if you didn't catch that if you are diversifying stocks or a foreign currency you can easily make inflation work for you with a fixed loan that's when explain his parents took out a giant loan to purchase a house before hyperinflation kicked in as the value that currency fell off a cliff paying it off with any sort of foreign reserve that maintained its value became effortless they practically got a house for 1/10 of its cost which in today's market may be worth as much as 10 times more these are important notes to remember when considering the future you have to choose great businesses that will survive the worst of times even small returns long-term may beat out fixed income yields even cash as the Federal Reserve continues to print more and more simply flooded the system with money yes we did that's another way to think about it we did where does it come from do you just print it we print it digitally so we you know we as a central bank we have the ability to create money digitally and we do that by buying Treasury bills or bonds or other government guaranteed securities an act that actually increases the money supply we also print actual currency and we distribute that to the Federal Reserve Bank thank you guys for watching please make sure you hit that subscribe button if you enjoyed and also 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