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Ray dalio claims that no Kingdom can endure forever these are modest comments coming from a man who has developed the largest hedge fund in the world with assets of more than 150 billion dollars however the 72 year old millionaire founder of Bridgewater Associates is it discussing the company he built and relinquished control of his CEOs in 2017 then what is he talking about stay until the end as this video is going to be very informative in spite of the fact that dalio profited billions from the.com bubble and the 2008 financial crisis he is currently constructing the most notorious short position U.S take dalio seriously since he cannot afford to lose money in Europe dalio just revealed a 10 billion dollar short position and it's possible that he's been accumulating an even larger short position on the U.S market stagflation is one of the worst crises that we are now experiencing when there is both High inflation and a sluggish economy this is known as stagflation the GDP felt in the most recent quarter and the inflation rate has surpassed eight percent given that stagflation often precedes a recession this is very alarming after researching the economy for several Millennia Ray dalio found a pattern the government debt normally Rises at the beginning of the cycle which temporarily strengthens the economy lending is a two-sided transaction with creditors and debtors so while it may initially seem reasonable it is not the person who lends out the money is the Creditor and the one who receives the loan is the debtor both sides of a transaction cannot survive when there is too much debt in the system the reason for this is that one man's debt is another man's asset every time the Creditor extends a loan of funds they are lending out assets a creditor will naturally desire to increase their income if a debtor is taking on excessive amounts of debt because it indicates that they have fewer assets the main issue is that when debt levels are excessive debtors lack the resources to reimburse creditors in order to pay off the debt the debtor will be forced to liquidate assets ever Grant a Chinese real estate developer is an illustration of this as it had the liquidate assets to pay off debt the economy will therefore become weak as a result of this in order to prevent the economy from collapsing the central bank will print money in response to the failing economy the short-term benefits of creating money outweigh the long-term drawbacks paper that is supposed to represent value is all that money is that paper's value will inevitably decrease if its worth is ignored therefore prices will start to increase as a result of the Central Bank cutting interest rates as a result debt levels initially become excessive after that debtors make default due to debt which weakens the economy for the purpose of boosting economic activity the Central Bank prints money as a result we continue to struggle with the same fundamental issue of a struggling economy the only distinction is that creating money introduces inflation as a new issue we are currently in a stagflationary situation we have both a weak economy and excessive inflation because short-term economic growth is not achieved by printing money the next phase in the process is the Central Bank slowing the economy by raising interest rates in the past dalio has seen that doing so almost always results in a recession or depression nothing can be done to prevent it from happening inflation becomes a bigger issue if the government keeps creating more money the only way to combat inflation is to weaken Demand by taking money out of the economy stagflation then is the state that exists between the peak of a debt cycle and a significant economic slowdown dalio believes that since we are now experiencing stagflation a recession or depression is the next logical step in the cycle are we close to having stagflation dalio yeah we are in stagflation we are stagflation is simply where you have inflation and yet at the same time you have high unemployment yeah you have economic weakness in other words you have a stagnant economy stagnant essentially means meaning growth is reduced slow growth right low growth and with high inflation and 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 debts are another man's assets it just becomes a very difficult Balancing Act and that is when you have stagflation when you produce it so just like in the 1960s late 60s we spent a lot of money on guns and butter we called it right Vietnam War and social programs and so on we wrote too many checks relative to the money we had in the bank which was gold at the time 1971 the devaluation then they print a lot of money into that stagflation stagflation last occurred in the 1960s the government borrowed money to buy food and armaments due to the Vietnam War and social programs however the U.S government had to print money since it lacked the funds to settle this debt as a result the U.S experienced stagflation a period of both High inflation and a sluttish economy the 1970s were historically unique at the time and they helped to prepare the U.S for the financial collapse in 1971.
at the time the United States was spending a lot more money than it was earning by writing a lot more of these paper money checks that it had gold in the bank to exchange for them according to dalio who added on Twitter dalio continued as people turn these checks into the bank for gold the amount of gold in the U.S dwindled it soon became obvious that the U.S couldn't keep promises for all paper money so people holding dollars rushed to exchange dollars before the gold ran out by implying that commodity money and Fiat money are two different types of currency dalio made his case money that derives its value from a physical good is called commodity money consider the example of gold people have used gold as payment for goods and services for several centuries because it is a rare metal with special chemical properties gold has substantial value money that is backed and issued by the government on the other hand is known as Fiat money due to the U.S government's sole control over the value of the dollar it serves as an example of Fiat money a significant transition from Fiat to commodity money to place in 1971.
if the government decides to keep producing money stagflation puts economies at risk of erasing their feed money the 2008 hyperinflation in Zimbabwe is a prime illustration of this the government made the error of printing more and more dollars which resulted in a daily inflation rate of 98. percent for the Zimbabwean dollar people only placed value on fiat currency because they believe in it the US Dollar's value will fall if people lose faith in it additionally as the value of the dollar Falls further more people start to doubt it the FED is worried about a positive feedback loop in this situation how severe of a recession are we currently discussing an illustration of an automobile can be used to explain the solution consider the characteristics of good and terrible drivers the car would travel forward gradually at a relatively steady speed if the driver was skilled of softly using the brake and gas there will be outside factors such as people and traffic signals that are beyond the driver's control the ride will be comfortable for the passengers nevertheless if the excellent driver plans ahead and gently eases on the brake bad drivers would abruptly adjust their speed by slamming on the throttle and braking the car would frequently Lurch backward and forwards making the ride quite uncomfortable for the passengers let's just say the Federal Reserve has performed poorly behind the wheel in 2021 they slammed on the gas sending the vehicle lurching forward they're about to slam on the brakes sending the automobile lurching backward as a result in 2021 the FED printed 1.5 trillion dollars worth of currency annually corporate pre-tax earnings increased by 25 percent as a result which is the highest gain since 1976.
corporate earnings Rose by a whopping 37 after taxes the highest gain since 1948. at the moment the FED is reducing the amount of money in circulation by 1.1 trillion dollars annually we're set to go through a crisis of that size which is not shocking but on the worst side the U.S experienced two recessions throughout the 1970s the first of which began in 1974 and the second of which began in 1979.
Paul Walker the chair of the Federal Reserve was the only reason the U.S managed to survive this crisis to combat inflation volcker increased interest rates in 1979. due to this the economy went through erratic changes with the GDP primarily falling during Walker's tenure but more crucially other nations suffered greater harm than the U.S did debtors from abroad were plunged into depressions that lasted for 10 years inflation was decreased according to dalio by people and businesses being brutally squeezed and cutting expenditure it will be the same this time because there's always the case as was previously mentioned money printing led to an overextension of the capital markets in 2021 due to his bubble gauge which he employs to determine whether equities are overvalued dalio is aware of this dalio is basing his prognosis on historical precedent because the 1920s and 1990s were pretty comparable to the 2020s due to easy monetary policy growth stock valuations 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 yield on two-year treasury bonds there are still more negative aspects of the current bubble than there were in the 1920s and 1990s The Leverage gauge is yet another tool that dalio employs he evaluates the Market's position margin debt and options volume with his leverage gauge 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 has 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 unaware whether dalio holds a short position on the U.S market because the SEC does not require investors to report their short positions having said that we wouldn't be shocked if he did especially considering his short position in Europe furthermore dalio thinks there is a 40 probability that the U.S would see a Civil War in addition to a recession what do you think of all this it's not professional Financial advice but purely based on our own research and opinion we have reached the end on this one see you on the next one bye
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