It’s Over! The ENTIRE Economy Is About To Collapse It’s Ray Dalio’s Last WARNING
Ray Dalio, an American billionaire investor and hedge fund manager, explains the vulnerabilities of the current financial system and the significant changes that will affect the world order.
Dalio highlights the differences between entities, the rich and the poor, those with good income statements and balance sheets, which will define the characteristics of the upcoming conflicts. The changes in money and credit have enormous political and wealth implications that will be clarified over the next two years.
Dalio argues that the world is in a new era in which the government borrows money and directs that money more than the normal capital markets. The central banks are buying money, and this will have a profound impact on the value of money, probably the reserve currencies, and it will change the nature of capital flows.
China has come out of this crisis well, and it is challenging the existing power in its competitions. There are struggles and fights over wealth and political power within countries and between countries.
The current situation is similar to the period before World War I and World War II. There are large wealth gaps, income gaps, and opportunity gaps that exist, and there is no time that has been this large since the 1930s. It is a defining moment of how we’re going to be with each other internally within countries and externally.
Every individual, company, and country depends on how much their income is relative to their expenses and how much their assets are relative to their liabilities.
Dalio advises diversification, liquidity, and differentiation in portfolios. A period of great uncertainty and great risk is coming, and investors must reduce risk without reducing opportunity. They should diversify asset class, country, and currency, including reserve currencies.
Liquidity allows the flexibility to change as circumstances change. Differentiation is essential in this kind of environment, and investors must consider those that will be orderly and prosperous versus those that will be bankrupt and disorderly.
The cycles in history show that debt and credit create buying power and short-term stimulation. It is a longer-term depressant because you have to pay it back. The pile of debt is also the pile of somebody’s assets.
When the pile becomes significant, and the incentives for not holding that are no longer there, a problem arises. Inflation and negative real returns will occur, which changes the nature of capital flows.
The World Order: A Defining Moment
The current state of the world’s economy is of great concern. There are large wealth gaps, income gaps, and opportunity gaps that exist, and this has enormous political consequences. The left and the right will be in greater conflict, and it’s going to change the nature of capital flows. This is a defining moment in terms of the strong and the weak, and it’s going to have political and wealth implications that will be clarified over the next two years.
The world is experiencing a cycle of debt and credit that creates buying power, and it’s a short-term stimulative and a longer-term depressant. As the economy gets weaker, credit is used to pump it up, and this accumulates debt, which eventually becomes more and more difficult to manage.
We are currently in a situation that is similar to the one that occurred between 1930 and 1945 when interest rates were at zero, and the expansion of debt and its monetization was used to stimulate the economy. This resulted in a lot of liquidity, and the capacity of central banks to print money and buy financial assets has essentially let the bond market go to multiples that are somewhere between 100 times.
The world’s economy is also changing due to the rise of China, which is challenging existing power in its competitions. There are struggles and fights over wealth and political power within and between countries, and this can lead to confrontations. These confrontations can either be dealt with peacefully or confrontationally.
The political and social divide that exists in the United States and many other countries is also a significant concern.
Furthermore, the COVID-19 pandemic has highlighted the importance of global cooperation and the need for a stronger world order. The pandemic has affected every country and has shown that no country is immune to global crises. It has also exposed weaknesses in international institutions and cooperation, which must be addressed to better prepare for future crises.
The current world order is facing a critical moment, and it is up to leaders to come together and find solutions to these challenges. This includes addressing economic inequalities, promoting global cooperation, and managing tensions between countries. Failure to do so could lead to a more chaotic and unstable world.
In conclusion, the world is facing a defining moment that will shape the future of our economy, politics, and society. It is up to leaders to address the challenges facing the world order and find solutions that promote global stability and cooperation. Failure to do so could have significant consequences for future generations.
Diversification, Liquidity, and Differentiation
In terms of portfolio management, there is a period of great uncertainty and risk, so diversification, liquidity, and differentiation are essential. It’s important to make sure that investors are not just concentrated in some of the traditional markets.
Diversification of how to do that well can reduce risk without reducing opportunity, and that means currency diversification, including the reserve currencies, asset class diversification, and country diversification. Liquidity allows flexibility to change as circumstances change, and differentiation is the most important consideration.
The financial flows that we’re seeing, and the market behavior is reflective of the current situation. The capacity of central banks to put liquidity into the system and to have that liquidity go to produce high multiples is very real. It also changes the economics of borrowing. If you can find something that makes anything more than zero, you’re going to make money, so that encourages leveraging and changes the nature of capital flows.
Diversification is important because it allows investors to spread their risks across a range of different investments. This means that if one investment performs poorly, the impact on the overall portfolio will be reduced.
Investors should consider diversifying across different asset classes, such as stocks, bonds, commodities, and real estate, as well as across different geographies and currencies.
Liquidity is also important because it provides investors with the ability to quickly and easily access their funds. In times of market stress, having liquidity can be particularly valuable, as it allows investors to respond quickly to changing market conditions. This is especially important in today’s market environment, where volatility is high and there is a great deal of uncertainty.
Differentiation is perhaps the most important consideration in portfolio management. It is not enough to simply diversify across a range of different investments. Investors must also differentiate their portfolio by carefully selecting investments that have different risk and return profiles. This means selecting investments that are likely to perform well under different market conditions.
Ultimately, successful portfolio management requires a combination of diversification, liquidity, and differentiation. By carefully considering these factors, investors can build portfolios that are well-positioned to weather market storms and deliver solid returns over the long term.
Inflation and Monetary Policy
The world’s economy is experiencing two types of inflation: supply-demand inflation and monetary inflation. The supply-demand inflation occurs when demand is strong enough and presses against capacity, resulting in higher prices. The monetary inflation, on the other hand, comes from the supply of debt being too much, and they produce more money.
The holders of those financial assets, particularly bonds, go into other things, and this changes the amount that is in the hands of individuals. There is so much cash, and it’ll change the amount that is in the hands of individuals, and if now it’s in cash, that’ll move on because cash is trash.
The risk is that there will be a lot more demand because there is so much cash, and this will change the amount that is in the hands of individuals. The real risk that people will experience is more inflation, and this will result in the prices of houses and many other things going up.
It’ll be a different kind of inflation, though, because we’re in a more digital society. Those things can be produced without the capacity constraint.
Inflation and monetary policy are critical factors in the world’s economy. As you mentioned, there are two types of inflation: supply-demand inflation and monetary inflation. Supply-demand inflation happens when the demand is more than the available capacity, leading to higher prices. On the other hand, monetary inflation occurs when the supply of debt is too much, leading to an increase in the amount of money produced.
With the abundance of cash, the risk is that there will be a lot more demand, which could result in a significant increase in prices, including those of houses and other goods. However, this inflation will be different from the inflation experienced in the past as we are in a more digital society. The production of goods and services can happen without capacity constraints.
To address inflation, central banks usually adjust their monetary policy. One way is by raising interest rates to reduce the amount of money in circulation and control inflation. However, increasing interest rates can also have negative effects, such as reducing economic growth and increasing unemployment.
In some cases, governments use fiscal policy to control inflation. Fiscal policy refers to the use of government spending and taxation to influence the economy. The government can reduce inflation by increasing taxes, reducing government spending, or both.
It’s important to note that inflation and monetary policy are complex issues, and their effects on the economy are not always straightforward. Therefore, policymakers need to consider various factors when making decisions on monetary and fiscal policies.
As for the impact on wealth inequality, the current situation is concerning. There are large gaps between the rich and poor, with those who have good income statements and balance sheets being the defining characteristics. This divide has enormous political consequences, with the left and right in greater conflict.
These gaps have also been connected to changes in money and credit, with interest rates at zero and QE not passing through to those who need it most. Now, there will be more government borrowing and directing of money, which will have a profound impact on the value of money, reserve currencies, and capital flows.
This is a defining moment for the strong and the weak, and it will change the nature of capital flows. For example, China has come out of this situation very well, which will have implications for wealth and politics that will be clarified over the next two years.
Looking at history, we can see that this is a moment of change in the world order, similar to what happened prior to World War I and World War II. There are struggles over wealth and political power both within countries and between them, and this confrontation can either be dealt with peacefully or confrontationally.
As for investment portfolios, there is a period of great uncertainty and risk. Therefore, diversification, liquidity, and differentiation are crucial considerations. Investors should not just concentrate on traditional markets, but rather diversify across asset classes, countries, and currencies.
Liquidity is also important for flexibility, allowing investors to change their strategy as circumstances change. Differentiation is also crucial, as there will be worlds that prosper in this environment and others that will be bankrupt and disorderly.
Regarding the financial system, we are currently in a cycle where debt and credit create buying power. While short-term stimulative, this cycle is a longer-term depressant because the debt must be paid back.
As an economy weakens, more credit is needed to prop it up, leading to a buildup of debt. When interest rates reach zero, it becomes more difficult to continue this cycle, and the pile of debt becomes a pile of somebody’s assets. Financial assets are claims on real goods and services, which means that the financial system is ultimately a reflection of the economy.
Looking at inflation, there are two types: supply-demand inflation and monetary inflation. The former occurs when demand is strong enough to press against capacity, while the latter is caused by an oversupply of debt.
Monetary inflation leads to holders of financial assets, particularly bonds, going into other investments, which creates a supply-demand problem. Inflation can occur in various forms, including in houses and labor, and there may be more inflation in the future due to the large amount of money in circulation.
We are in a defining moment in terms of the world order, wealth inequality, and investment portfolios. Investors should diversify their portfolios, prioritize liquidity and differentiation, and consider the implications of the changing financial system.
We must also be aware of the risks of inflation and debt, and take steps to mitigate those risks. As we move forward, it is important to keep a close eye on these issues and be prepared to adapt to the changing landscape.