Ray Dalio sees a big cycle debt crisis playing out, and it is not the first time he has taken to the stage to warn about it.
Ray Dalio explained that the crisis in the 2023 bond market, which is relevant today, was due to a disequilibrium in the supply and demand for treasury bonds.
In 2023, the bond market crash slashed trillions of dollars off the value of bond portfolios, making it the worst bond crash in the history of finance.
“You are producing too much debt, and you have a shortage of buyers. What is happening now as we have to sell all that debt is we don’t have enough buyers,” he said.
“In 2023, the bond market crash slashed trillions of dollars off the value of bond portfolios, making it the worst bond crash in the history of finance”
WEALTH TRAINING COMPANY
Ray Dalio sees a big cycle debt crisis due to sizable bond losses in 2023
Ray Dalio cited the changes in the quantity of debt held by large global investors that have lost money in these treasury bonds and the geopolitical changes which are having an effect.
In some cases, some countries are worried about sanctions. There is a supply-demand issue for that debt.
“There is a lot of debt, which has to be bought and has a high enough interest rate.
So, if we continue along this path, that balancing act becomes very difficult,” he said.
Surplus debt is due to a lack of fiscal discipline and excessive government spending.
Excessive surplus debt creates the need for enough buyers for the debt, sold as bonds.
But buyers of bonds, which a generation of investors believed to be safe-haven assets, have recently been left holding the bag to the tune of trillions of dollars in losses as the Fed rate hikes may have caused a temporary lull in inflation.
The maturity risks associated with holding bonds, during periods of high inflation have been underestimated by investors.
“There is a lot of debt, which has to be bought and has a high enough interest rate. So, if we continue along this path, that balancing act becomes very difficult”
RAY DALIO
Moreover, to attract buyers of new bonds investors want higher yields to compensate for the maturity risks associated with holding bonds during periods of high inflation, which was underestimated by bond investors who paid into bonds when yields were around 1 to 2%.
Investors are losing confidence in the ability of policymakers to implement sound policies. The COVID psyops, which culminated in the great global lockdowns, resulted in the Fed fund rates being slashed to near zero. Unprecedented monetary easing policy aided and abetted a government spending debt orgy.
So, years of fiscal recklessness led to an oversupply of treasury bonds.
As inflation began to raise its head, the second part of the madness came from monetary policymakers at the helm.
Investors were told that inflation was temporary, transitory and then sticky. Mainstream economists and the mainstream media parroted the narrative, and the most conservative booted and suited investors, banks, and pension funds bought it.
“Today, BlackRock, the world’s largest asset manager with $10 trillion of assets under management, thinks 28% Bitcoin allocation is reasonable” – Ray Dalio
But it defied fundamental economics, creating the currency, increasing the money supply and lockdowning production, and the workforce leads to more cash chasing fewer goods and prices being bided higher, inflation.
So we have two crazy dance partners, Lady Fiscal Recklessness and Gentleman Fairytale Monetary Policy, doing the tango with the latter conceiving the mother of all bond crashes. We are keeping with the theme of a politically correct wacky world where transgender men can also conceive. Remember the old nostalgic days of two genders and the 60-40 portfolio rule?
Today, BlackRock, the world’s largest asset manager with $10 trillion of assets under management, thinks 28% Bitcoin allocation is reasonable.
Remember the all-respected Financial Times doing its best to keep its readers from investing in the best-performing asset over the last decade.
So BlackRock has more confidence in a computer algorithm with tacit value that generates a finite number of digital tokens.
Reading between the lines, a globally marketed, decentralised, monetized computer algorithm that generates a finite number of tokens has been a better store of value than central bank bonds.
But that is a vote of no confidence in today’s centralized policymakers.
“The war, on the eastern front in Europe, is littered with a wrangled wreckage of Western wonder weapons” – Wealth Training Company
The international crisis of confidence in bonds supports Ray Dalio’s sees a big cycle debt crisis
So, if the investing elites question the sustainability of their government policies and their actions show a lack of confidence in a jaded system, why should the rest of the globe keep buying it?
A US-centric unilateral world order, US hegemony with USD as a world reserve currency, is being challenged.
The global south also wants to eat meat, drive cars and be paid a fair deal for their natural resources.
Why would a resource-rich country want to be underpaid for its natural resources in rapidly debased US dollars?
Where is the Empire’s exceptionalism?
Safe haven treasuries can’t even handle interest rate normalization policy, without blowing up the banks. The Fed raised interest rates to 20% to combat inflation in the early 80s.
The war, on the eastern front in Europe, is littered with a wrangled wreckage of Western wonder weapons. Two years on, hundreds of billions of dollars later, NATO, on its continent, can’t kick Russia out of Ukraine.
Ray Dalio sees a big cycle debt crisis; is the Emperor naked?
Commodity-rich countries could start demanding payments outside the US dollars. If so, inflation could go sky-high, the bond market collapses, and yields keep rising into an apocalyptic financial crash, taking the dollar with it.
Inflation could worsen as economic activity shifts to the global south.
