Ray Dalio: Everyone Will Be Terrified Soon

Although economists frequently make mistakes, Ray Dalio is not one. He is a fund manager who is putting his clients' money—billions of dollars—on the line. Although Dalio made billions on the dot-com bubble and the 2008 financial crisis, he is currently constructing the mother of all shorts. You must consider Dalio seriously because he cannot afford to lose money. In Europe, Dalio just revealed a $10 billion short position, and it's possible that he's been accumulating an even larger short position on the US market.

Stagflation is one of the worst crises that we are now experiencing. Stagflation occurs when there is both high inflation and a poor economy. The GDP shrank in the most recent quarter and the inflation rate has surpassed 8%. Stagflation normally occurs just before a recession, so this is very alarming. After researching the economy for several millennia, Ray Dalio found a pattern. Typically, the cycle begins with a surge in public debt, which temporarily strengthens the economy. In the short run, this can seem sensible, but lending is a two-sided process with creditors and borrowers. The debtor is the party who is given the debt; the creditor is the one who lends the money. Both sides of a transaction cannot survive when there is too much debt in the system. Because one man's debt is another man's asset, this is the case. The creditor is always lending out assets when they make a loan of money. If the debtor has taken on excessive debt, this indicates that the creditor has little assets and will, naturally, desire to increase its income. The main issue is that when debt levels are excessive, debtors lack the resources to reimburse creditors. The debtor will be forced to liquidate assets to cover the debt as a result. Chinese real estate developer Evergrande is an illustration of this, as it was forced to sell off properties in order to pay off its 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. While printing money could be effective in the short run, it leads to issues in the long run.

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 then, debtors stop making payments on their debt, which weakens the economy. The result is that the central bank prints money to stimulate the economy. 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 experiencing stagflation. We have a poor economy and excessive inflation because printing money doesn't help the economy in the long run. The central bank slowing the economy by raising interest rates is the next phase in the process. 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. The inflation issue gets worse if the government keeps printing more money. By taking money out of the system, one can eliminate demand, which is the only method to end inflation. 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.



Ray Dalio has researched the past 500 years of economic history. He provides a thorough explanation of how the economy operates and offers his opinions on the impending severe debt catastrophe. Enjoy the analysis from one of the world's top investors and let us know what you think in the comments section below!

American billionaire investor Raymond T. Dalio is from New York. He established Bridgewater Associates, the biggest hedge fund in the world, in 1975. With $140 billion under management, the company manages assets for institutional clients such pension funds, endowments, foundations, foreign governments, and central banks. Other excellent books by Ray that are also worth reading include "Principles: Life & Work," which discusses business management and investment philosophy.

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