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water has over 150 billion dollars of assets that it invests now the founder dalio is someone that likes to analyze patterns when it comes to investing in the stock market and today in this current market dalio sees a number of flaws that could bring it down now the first thing that he mentions was the wealth gap now this graph is slightly old but it shows you what dalio is talking about the gap between the rich and the poor is widening basically ever since that 1987 mark where the economic boom took place even since the pandemic where a lot of people have lost jobs and gotten poorer the 10 richest billionaires have gained a further 540 billion dollars combined in wealth over this period now this has caused tension between the rich and the poor and it's one of the factors that makes our system shaky second he mentions the values gap this growing divide that we seem to be seeing between the right and the left you know it's like no you're either trump or biden there's no in between you're either democrat or republican and we don't want to hear what the other side has to say and this causes more friction and lastly you mix these two things with large amounts of debt that we have in the system and it's not a good combination we can put it that way you know if we take a look at usa's national debt it's above 27 trillion dollars that is more than the entire amount of total gdp produced in a given year so if you take all goods and services produced in 2020 and you spent it all on paying off debt you wouldn't even cover it so it's this along with widening wealth gaps and values gaps that makes the economy shaky potentially even worse than 2008 this is what dalio says what i'm really concerned about is that 2008 um represented what we have as a worse situation than 2008 now regarding the finances um so if you look at history and repeat over periods of time there is the creation of money and debt to get spot to get buying power but that is being produced by central banks that print that money uh because uh they can't finance that any other way and that particular dynamic and the extension of it which is repeated out in time that if you like i'll explain a little bit more of um that is the big concern so you've got the central bank aka the fed who have to print money they don't really have a choice they've got debt payments to make they've got to give free money to people who don't have jobs and they have to hand out loans to businesses who without it wouldn't survive so normally the right way you should pay off debt is by actually producing more you want your businesses to be selling more being more innovative making more profit and paying more taxes and using that to pay off the debts not simply through the printing of money which brings in a whole list of concerns so there's a lot of money slashing around but if you think about it the wave of financial assets and we talk bonds and and and debt as alike is believed to be it gives buying power but it's also believed to be that one could sell one's bonds and assets and buy goods and services with that but the amount that exists out there that are claims is far greater than would be allowed to happen so there's a financial situation which is deeply of concern to me uh and to some extent it's it provides the liquidity for some of these things to happen but the things that are happening here other than being reflective of the liquidity um are really just part of this bigger problem i think so these bonds issued by whether it's corporations or the governments it's allowing institutions to go out and buy things with the money that they get from the bonds this in turn does help the economy because it's through these bonds that money is injected into the economy but it's not natural and as dalio said those claims on those bonds is far greater than what would be allowed to happen the natural way of growing the economy would just be through producing more and innovation not through the endless issuing of bonds this has happened throughout history you can go back thousands of years and you see the pattern and that pattern is not a pattern of self of good finance it risks the dollar it risks um that the possibility that that won't be a good storehold of wealth those those bonds and that's not good sound finances so one should not delude oneself into believing that because interest rates are low that um that that's not um a problem i think it'll be a problem i think one of the most important things to consider too is is that um money that's going to be um expended also going to be productive in terms of producing goods and services and so on in its way i don't think we're paying enough attention to productivity either so i would i'm just a mechanic looking at how the machine works and my definition of the machine is that uh it's very concerning so if we take a look at this machine there's a whole lot of kinks in the way it's turning right now first of all people assume that the usa will remain the world's reserve currency this is not necessarily the case the dollar is getting weakened the more free money that is given out and the more unsound economic principles that are being used look at the us dollar compared to the chinese yuan over the past year significantly weakened the us dollar compared to the uk pound again it's the same story the us dollar compared to the australian dollar it's the same thing over and over again but the dollar's been weakened a lot lately and don't fool yourself in thinking that the us could not lose its reserve currency status it can if unsound economic methods continue to be used i think the united states has gotten used to being the real world's reserve currency which meant that they think that whatever we can sell the rest of the world the world will buy and we're not subject to constraints or that dynamic so that concerns me um a bit and these economic conditions that we're currently in they remind dalio most of the 1930s remember dalio is an historian through and through and he studied economic history over the past 500 or so years you can see that with all of his linkedin articles and the research that he's put on the internet so for him to say that the way things currently look in 2021 are similar to the 1930s i think it's concerning let's see exactly what he said the three big factors are this financial dynamic that we're talking about the second is um the polarity that exists in wealth values and politics which is extreme you might look at statistics and i go back and you would have to go back to 1900 to find something like this and then we have um the rising of a great power china to challenge an existing great power those three factors the financial factor the wealth gap and political factor and the rise of a great power the last time those things happened were in the 1930s so the rise of china that's an interesting one because it now means that the usa has competition for the world's leading superpower status and the same goes for the world's reserve currency you know even looking at this graph we can see that when it comes to the economy china's growing a lot faster you know that's six or seven percent compared to two 2.5 percent china's almost triple that of the states you know china also has four times the population compared to the usa 1.4 billion compared to 330 million you know looking here they have four times less of a deficit than the usa as well as two times less government debt so they definitely have their share of economic statistics in their favor to make them compete with the usa in fact some economists are saying that by 2028 as soon as that china will overtake the usa as the world's largest economy partly due to the effects of the pandemic so this rise of china along with the wealth gap the values gap the debt in the system they all combine to make the market and the economy balancing on unsteady grounds not like 2008 but more like the 1930s as dalio says and i don't know how good your history is but the 1930s wasn't exactly the most fun period to be an investor or just anyone really you know we had that big crash and it took a long time for the economy to recover and years for people to get back into some form of employment and dalio is not necessarily saying these things so that everyone panics but they are conditions that we all need to be made aware of it's so important to go back through history and learn from it because if you don't learn from it as the saying goes you are doomed to repeat it
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