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The latest conversation with Bridgewater Associates’ Ray Dalio

Ray Dalio spoke with Maria Bartiromo at the Council on Foreign Relations this morning about a number of economic and financial topics. Dalio covered a number of topics including deleveraging the euro crisis and alternative investments like gold. On the whole, Dalio is cautiously optimistic. For example, he believes that Greece has a 60% chance of remaining within the euro zone. And Dalio doesn’t believe we are on the cusp of a second global economic recession.

On the other hand, Dalio was quoted by the Wall Street Journal as seeing a lost decade in front of us for southern European countries. And he believes these countries will grab the political reins in Europe to alleviate the stress of this economic downturn:

Southern European countries are in the early stages of a major deleveraging that will produce a Depression-like environment, Dalio said.

“I think we’re going to have a bad set of economic conditions,” Dalio said. “You’ll go through 10 years of cycles, very much like Japan, where you’ll have bull markets and bear markets.”

But he added lost decades could be survived and typically took about 15 years to work through.

In Dalio’s view, these kinds of policies all produce a rise in the price of alternative investments like gold. He says there’s “no sensible reason” not to own gold given negative real and almost zero nominal interest rates.

None of this should come as a surprise given what Dalio has said in the past. (see Ray Dalio on Deleveraging from May and Ray Dalio on the D-Process in Europe from last September for example. A full catalogue of Dalio commentary is here.)

But the video below is a more in-depth full hour-long segment and well worth watching. Notice that Dalio sees the credit accelerator as a key component adding to aggregate demand and the key component that creates instability in that demand. Unlike traditional econometric models that do not use the debt and credit stock as a consideration for a flow variable like spending, yet again we see that someone who anticipated the crisis does.

Source: CFR

About 

Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College. Edward also writes a premium financial newsletter. Sign up here for a free trial.

1 Comment

  1. David_Lazarus says:

    While I do think that he is right about the reasons for holding gold, and for Greece staying within the euro, I would disagree on them avoiding a depression. Greece is already in a depression, as is Spain. 25% unemployment is not a recession. It is a depression. Remember the US had a depression with unemployment as low as 10% in the thirties.

    As for them working through this in as little as 15 years I think that he is overly optimistic. Japan is still not out of the woods financially after twenty years. Iceland will be out of this within a few years. Ireland will still be a basket case in ten years. Greece will become a third world nation as a result of the troikas policies. All to save the bond holders from their losses.