“I think that bondholders who receive negative real and nominal interest rates will be asking themselves more and more questions, when there is a lot of money printing, on whether Debt assets they hold are good wealth stores. I think cash, which does not bear interest, will not be the safest asset to hold. “
Billionaire investor Ray Dalio demonstrates that the US dollar, perhaps any currency, will be a gamble lost in this new era of COVID-19.
During a question-and-answer session on the social media platform Reddit, the founder of the hedge fund Bridgewater Associates highlighted a point he raised in the past, but which has more resonance than the disease infectious virus that was first identified in Wuhan, China. December wreaks havoc on world economies and forces central banks and governments to deploy an unprecedented range of fiscal and monetary stimulus efforts. These measures are intended to help limit the severity of an economic slowdown that certainly looks like a global recession.
Dow Jones industrial average
the S&P 500
and the Nasdaq composite index
are between 18% and 21% below their record highs in February.
But Dalio defended his skepticism about money by recalling history.
“Now, as in the period 1930-1945, interest rates have reached 0% and printing money and buying financial assets does not get money and credit where policy makers want to go, so the central government borrows a lot and the central bank prints a lot of money and creates a lot of credit to buy this debt, which the central government spends to target what it wants to save, “he wrote.
The impression of money and government bonds, Dalio said in a July article on LinkedIn, have sown the seeds of future inflation, a major change from the still low inflation that has marked both. past decades.
For Dalio, the Federal Reserve has launched a virtually unlimited bond purchase program and a host of new facilities to help ease market pressures and reduce federal funds rates to a range of 0% and 0.25% . Meanwhile, President Donald Trump signed a more than $ 2 trillion rescue plan for workers and businesses affected by COVID-19 on March 27.
” I think the [low-inflation] the paradigm we find ourselves in will most likely end when a) real interest rate yields are pushed so low that investors with debt will not want to keep it and will start to move on to something they deem better and b) simultaneously, the need for money to finance the liabilities will contribute to the “big pressure”, he wrote.
“At this point, there will not be enough money to meet his needs, so there will have to be a combination of large monetized deficits, currency depreciations and large tax increases,” Dalio wrote.
He warned of the serious implications of this dynamic: “These circumstances will probably increase the conflicts between the wealthy capitalists and the poor socialists”.