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as we know ray dalio has gained billions from the dot-com bubble in the 2008 collapse but he is currently constructing the mother of all sorts recently dalio reported a 10 billion short position in europe but it is likely that he has also been amassing a much larger short position in the u.s market what's good you guys this is market thrive and today we are going to talk about how american fund manager and investor ray dalio is preparing for an upcoming global economic collapse before i start the video i would just like you to do me a favor by just hitting that subscribe button and the bell notification down below to keep you updated on this channel so without further ado let's hop into it the worst kind of crisis we are currently experiencing is stagflation when there is both high inflation in a sluggish economy this is known as stagflation over eight percent of the population is now experiencing inflation while the most recent porter saw a drop in gdp due to the fact that stagflation frequently precedes a recession this is very alarming the economy of the last few centuries has been researched by ray dalio who has noticed a trend usually the cycle begins with growth in governmental debt which temporarily strengthens the economy lending is a two-sided transaction between predators and debtors despite the fact that at first glance this may seem rational in a debt the debtor is the party who has owed the money not the creditor both sides of the transaction cannot survive when there is an excessive amount of debt in the system the reason for this is that someone else may own someone else's debt a creditor is loaning out assets when they extend credit the creditor will naturally wish to increase revenue if the debtor has taken on excessive debt because it indicates a lack of assets on the part of the debtor the main issue is that when debt levels are too high borrowers lack the resources necessary to make creditor payments in order to pay off the debt the debtor will be forced to liquidate assets evergrand a chinese real estate developer is an illustration of this as it had to eliquidate assets to pay off debt the results will be a weakening of the economy since the economy is weak the central bank will print money to prevent a collapse while creating money out of thin air may be effective in the short run it is problematic in the long run simply put money is value representing paper respecting the worth of that paper will inevitably cause it to lose some of its value the central bank's decision to decrease interest rates will therefore cause prices to start increasing the first result is an increase in debt levels the economy then suffers as debtors stop making payments on their debt for the purpose of boosting economic activity the central bank prints money as a result the fundamental issue of a sluggish economy has persisted throughout the only distinction is that creating new money creates inflation a brand new issue stagflation is the current state in which we are we have a poor economy and high inflation as a result of the fact that printing money does not help the economy over the long term as a next stage in the pattern the central bank will raise the interest rates to slow the economy this has nearly always resulted in recession or depression in the past dalio has seen it cannot be prevented in any way inflation gets worse if the government keeps issuing more currency by taking money out of the economy the only way to combat inflation is to sabotage demand the middle ground between the peak of a debt cycle and a significant economic recession is in other words stagnation since we are currently experiencing stagflation a recession or depression is the next logical step in the cycle according to dalio quote stagnant essentially means slow growth that happens through this monetary situation that i'm describing in which the central bank tries to deal with the middle course in other words what does the central bank want not too high inflation and not too low growth and so when there's a lot of debt because one man's deaths are another man's assets it just becomes a very difficult balancing act and that is when you have stagflation when you produce it end quote at the very end of the interview dalio was about to declare that stagflation comes before recessions when the interviewer abruptly cut him off the 1960s marked the last time we had stagflation the government incurred debt to pay for food and armaments because of the vietnam war and social initiatives money that is backed and issued by the government on the other hand is known as fiat money due to the us government's sole control over the value of the dollar it serves as an example of fiat money the transition from fiat to commodity money took place in large quantities in 1971.
stagflation puts nations at risk of losing their fiat money especially if the government decides to keep producing money a prime illustration of this is zimbabwe's hyperinflation in 2008. because the governments made the error of printing more and more dollars the zimbabwean dollar endured a daily inflation rate of 98 people believe in fiat money which is why it has value the us dollar's value will plunge if people stop believing in it furthermore as the value of the dollar declines more people lose faith in it the federal reserve is really worried about the positive feedback loop consequently what type of recession are we discussing in 2021 they pushed the gas all the way down sending the automobile lurching ahead they are currently hammering on the brakes causing the automobile to lurch backward as a result in 2021 the fed produced 1.5 trillion dollars in new currency each year in turn this caused a 25 increase in company pre-tax earnings the biggest price since 1976 the highest gain in corporate earnings since 1948 and post tax profits grow spend additional 37 with a 1.1 trillion dollar yearly rate production the fed is currently reducing the amount of money in circulation a crisis of that size is set to occur but it will be negative which is not surprising in the 1970s there were two recessions that the us experienced the first beginning in 1974 and the second beginning in 1979.
fed chair paul volker was the sole person who helped the u.s overcome this catastrophe in an effort to curb inflation volcker increased interest rates in 1979. due to this there were erratic changes in the economy with volcker's administration seeing the gdp primarily declined the fact that other nations suffered more than the us is more significant that our nations were thrown into depressions that lasted for 10 years with people and businesses being quote painfully pinched and cutting back on spending dalio explained how inflation was lowered this time will be no different as it always is as was already mentioned money printing in 2021 led to an overstretch in the capital markets in order to determine whether equities are over valued dalio utilizes a bubble gauge which allows him to know this in this graph you can see how dalio's personal bubble gauge classifies bubbles into percentiles the bubble gauge reached its 99th percentile of bubbles during the 1920s similar to the 1980s the 1990s spent several years near the 99th percentile before collapsing prior to the most recent crisis the 2020s were in the 40th percentile of bubbles ranking in the 85th percentile overall so based on dalia's indicator stocks are actually undervalued according to dalio's indicator the bubbly business have really fallen below the mean in spite of this dalio believes that the bubble stocks will continue to decline since the 1990s and the 2020s are relatively similar dalio is basing his forecast on historical data due to favorable monetary conditions growth stock valuation significantly increased during each of the three decades this gave him the opportunity to look at historical patterns and anticipate the future in all three instances dalio plotted the nasdaq's yield onto your treasury bonds there are still more negative aspects of the current bubble than they were in the 1920s and 1990s the leverage gauge is yet another tool that dalio employs his leverage indicator evaluates the market's position options and margin debt we are currently at the 50th percentile of the data set according to the leverage gauge which is roughly average some investors might conclude that there is still little no to risk as a result but dalio disagrees he has observed that to return to the automotive analogy bubbles frequently overcorrect bubbles frequently swing more widely than the fundamentals indicate similar to how the economy fluctuates back and forth although the market's current average level of leverage may appear adequate bubbles frequently over correct to the 20th if not 10th percentile dalio stands to profit immensely from the impending over correction according to reports he short 10 billion dollars worth of equities listed in europe he is shorting stocks that are comparable to those in the euro stocks 50 index an indicator that measures the top 50 largest stocks in europe we are unsure if dalio has a short position in the u.s market because the sec does not mandate that investors report their short positions having said that i wouldn't be shocked if he did especially considering his short position in europe furthermore dalio thinks there is a 40 probability that the us would see a civil war in addition to a recession so what do you think about dalio's economic strategy do you think the same feel free to jot down your thoughts in the comments section below if you enjoyed today's video please leave a like if you want to stay updated on our posts hit that subscribe button as well once again this is market thrive signing off
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