Ray Dalio demystifies the current crisis with his sky-high macro picture view.
He unpacks the current financial, economic, socio-economic and political crisis of our age into three major forces; first financial and economic implications of excessive private and public debt; second, the internal conflict associated with a widest wealth gap since the 30s triggering political polarity of left and right.
Thirdly, the world order cycle is shifting from unilateralism to multilateralism where rising powers are challenging the hegemon, existing world power.
“Ray Dalio unpacks the current financial, economic, socio-economic and political crisis of our age into three major forces”
WEALTH TRAINING COMPANY
Great power politics of multilateralism, where there is no longer a higher authority, increasing geopolitical risks and the likelihood of war, making investing riskier
“Let’s call it the great power conflict. In 1945, there was a cycle, a war, and the winner determined the rules of the game. Then there is this evolution of others becoming more competitive, and you have a conflict again,” he said.
But that happens when two rivals change their relationship from collaborating as in a strategic alliance to being competitive rivals.
The US-China relationship was fine for decades, while China bought US treasuries, which got recycled on Wall Street as cheap loans to finance goods made by US companies using low-cost Chinese labour. Wall Street Champaign superyacht profits kept flowing with commissions. Corporate profits grew as low labour costs increased profits, and the US government could keep expanding the public deficit. But the era of hyper-financialized Western finance led to the deindustrialization of the West as China became the world’s factory. So the FIRE economy fuelled by cheap credit boomed. Speculating to accumulate was the game where those closest to the virtually free money became wealthy flipping assets.
“Let’s call it the great power conflict. In 1945, there was a cycle, a war, and the winner determined the rules of the game. Then there is this evolution of others becoming more competitive, and you have a conflict again”
RAY DALIO
Meanwhile, as factories and production plants closed, the unemployed spiralled, and the once great iconic towns morphed into crime-ridden slums.
US-China relations pivoted to competitive rivals when the latter questioned the deal of exchanging tangible goods for US paper, backed solely by the trust and value of the dollar as the reserve currency.
“One man’s debts are another man’s assets” – Ray Dalio
Join the dots and see the future
Warren Buffett sold all his shares in TSMC, saying the threat of a Taiwan war was a consideration.
Ray Dalio demystifies the current crisis where his interpretation of the world order cycle points to a global conflict dead ahead that could regretfully be right.
Ray Dalio demystifies the current crisis, the banking crisis a systemic crisis
Regarding the SVB crisis, he said that it was easy to predict.
“One man’s debts are another man’s assets,” he said. The government had to sell a lot of debt, which other entities bought at low-interest rates, which fueled debt and the buying of bonds.
When interest rates rose, the value of that debt went down, and the money they had to give to depositors became more expensive. Depositors also withdraw deposits as treasury yields rise.
A global financial liquidity crisis is brewing because of the international buying of treasuries, which fell in value. “World has been leveraged long, and borrowed money to buy stuff, which fell in value,” he said.
Ray Dalio thinks central banks will print money to avoid defaults.
