Ray Dalio’s 1930s analogue that the current period is just like the 1935-1945 could hold water.
Ray Dalio’s Bridgewater, the world’s largest hedge fund published an essay titled “The Three Big Issues and the 1930s Analogue” makes compelling reading.
Ray Dalio’s 1930s analogue supports a growing view amongst established financial institution
This includes the BofA that the central banks’ ability to halt or even reverse an economic downturn in this late stage of a long-term debt cycle has expired.
Moreover, any attempt to throttle monetary easing to the boundaries of Zero, negative interest rate policy (NIRP) leads to financial wars and eventually a global conflict.
Here is Ray Dalio’s LinkedIn post published on October 23, 2017, entitled Our Biggest Economic, Social, And Political Issue. The crux of Dalio’s piece is that a widening wealth gap and income inequality have contributed to a two-tier economy which is also causing social and political challenges. But is Dalio shedding light on anything new, after all just 8 men own the same wealth as half the world?
“Ray Dalio’s 1930s analogue supports a growing view amongst established financial institution”
Indeed, that is what Governor of the Bank of England, Mark Carney speech given at Jackson Hole hinted.
Ray Dalio’s 1930s analogue is somewhat out of tune with the usually optimistic Ray Dalio
Previously Ray Dalio’s optimistic thesis spoke about a “beautiful deleveraging”, which is where corporates and governments make cuts where necessary to strengthen their balance sheet without triggering another economic downturn. But if a “beautiful deleveraging” has failed then are we heading into some kind of global calamity, a global conflict that could be indirectly aided and abetted by the central bank’s NIRP as hinted by the Governor of the Bank of England, Mark Carney. Put bluntly if a “beautiful deleveraging” hasn’t cut it then is the devil’s alternative a (beautiful) global war the final solution?
Ray Dalio’s 1930s analogue is carefully crafted not to be alarmist
Ray Dalio’s Bridgewater writes about similar problems back in the 1930s, namely a stagnant economy, the rise of trade protectionism, large-scale wealth inequality and the rise of political popularism which led to “serious problems”.
“Ray Dalio’s 1930s analogue is somewhat out of tune with the usually optimistic Ray Dalio”
Three pressing issues shed light on Ray Dalio’s 1930s analogue.
“The Three Big Issues and the 1930s Analogue” essay explains that we are at the end of the long-term debt cycle where central banks are no longer effective).
The second big issue is a large wealth gap and political polarity.
Finally, the third factor is a rising world power, China challenging an existing world power.
“China is now number one in fintech, number 3 in AI and machine learning, number 2 in wearables, number 2 in virtual reality, number 2 in educational technology, number 2 in autonomous driving” – Ray Dalio
Ray Dalio’s 1930s analogue warns of what could be the greatest geopolitical event of the century, the Thucydides’s Trap
The ancient Greek historian Thucydides explained in his writings that when one great power threatens to displace another, war is almost always the result.
China is currently challenging the US in the fourth revolution technologies
“China is now number one in fintech, number 3 in AI and machine learning, number 2 in wearables, number 2 in virtual reality, number 2 in educational technology, number 2 in autonomous driving” said Ray Dalio.
“They are running fast to be number one in those industries” said Ray Dalio.
So if we take Ray Dalio’s 1930s analogue, factor in monetary policy lunacy and add Thucydides trap then perhaps the mother of all naval battles in the South China Sea could be dead ahead.