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.