Ray Dalio and the next financial downturn. Reading time 1 min 30 sec. “It will be more severe in terms of social and political problems. For this reason, it will be more difficult to handle”. That’s what Ray Dalio stated about the next financial crisis, during an interview at CNBC on September 11. The founder of Bridgewater Associates, one of the most important hedge fund in the world with roughly $160 billion of assets under management, has also presented his book “A Template for Understanding Big Debt Crises”, which is possible to get online for free.
During the 10th anniversary of the collapse of Lehman Brothers, if we examine the numbers, the figures are far from being reassuring with the aggregate debt that has increased from 283% to 318% of global GDP in the last 10 years (rising from 173 to 250 trillion dollars). Dalio claims that we have reached the “seventh inning” of the debt cycle and that the real worries will show up in two years, when a tightening phase, similar to the one experienced in the period 1937-1940, will take place. The billionaire investor argues that the current macroeconomic scenario present two principal characteristics. First, the significant phase of expansion registered after 2009 has led to the creation of a national wealth gap which, in turn, fuels the populism sentiment. Second, the poor effectiveness of future monetary policies, given the present-day scenario characterised by zero interest-rate policy and the quantitative easing implementation that has reached its maximum. Differently from the financial meltdown experienced in 2008, this “depression” will develop slowly and bringing with it devastating social consequences, since States will not be able to meet pension and healthcare obligations.
Do you think that this financial crisis is concretely inevitable? Or, do you assess the scenario depicted by Dalio as excessively catastrophic?
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