Ray Dalio discusses the currency debasement threat, which is inflating the price of necessities and squeezing household budgets at a time of declining real wages.
In a backdrop of spiraling government deficits, Ray Dalio discusses currency debasement and the unwillingness of governments to halt spending and return to intrinsic money
Ray Dalio explains in a tweet;
“No hard money is involved in fiat systems; there is just paper money that the central bank can print without restriction. As a result, there is no risk that the central bank will have its stash of hard money drawn down and have to default on its promises to deliver it,” wrote Ray Dalio.
“So, when the system of hard money and claims on hard money becomes too painfully constrictive, governments typically abandon it in favor of what is called fiat money,” added Ray Dalio.
“when the system of hard money and claims on hard money becomes too painfully constrictive, governments typically abandon it in favor of what is called fiat money”
Ray Dalio discusses currency debasement regarding endless fiat currency creation in a world of finite resources
“Central banks want to stretch the money and credit cycle to make it last for as long as it can because that is so much better than the alternative.
Fiat money leads to the debasement of money,” said Ray Dalio.
Ray Dalio discusses currency debasement and highlights a precarious vicious circle
Think about it. The more central banks print to support spending to keep the credit cycle going, the greater the currency debasement, and the more currency has to be created to support the same level of spending. So the margin benefit, or impact, of central bank money creation diminishes over each period. Put simply, central banks will need to keep increasing the money supply each time. We have defined this as quantitative easing to infinity which is leading to a melt-up in asset prices as fiat currencies meltdown. Wealth is escaping the great currency debasement. Even Joe public who is being triple fisted by falling real wages, inflation, negative real interest rates on savings have figured out he is better off storing savings in sacks of coffee, wheat, rice, tools, things that he will need as his real wages and meager savings wither away.
“Central banks want to stretch the money and credit cycle to make it last for as long as it can because that is so much better than the alternative”
The fact that capital no longer pays interest payments above the real inflation rate is a sign that the fiat system is broken. There is no demand for capital because there is no viable economy to invest in.
Ray Dalio discusses currency debasement as the weakest currencies from the Myanmar kyat to Turkish Lira are collapsing in value measured against the US dollar.
Americans think USD is trash, but the Burmese or Turkish would think otherwise.
Even the EURO, the second most traded international currency, is down over 7% year to date against the USD, and GBP is down 2% over the same period.
Ray Dalio discusses currency debasement. Nevertheless, when the US dollar is compared against other currencies, it still shines like a safe-haven currency.
Only when USD is measured against commodities, particularly soft commodities, that inflation from currency debasement becomes apparent.
“Diversification is key as the world faces currency debasement threat,” said Ray Dalio