What’s Driving the Debt Crisis? | Ray Dalio on The Hustle Daily Show with Zachary Crockett

Check out The Hustle Daily Show episode page and show notes

Key Takeaways

  • “Whenever you’re living through a time that you haven’t lived through before, you might want to check history” – Ray Dalio
    • Dalio’s recent book, The Changing World Order, looks at where the United States is on the historical 18-step curve for the rise and fall of an empire
  • Ray Dalio’s main points on what’s driving the debt crisis:
    • Creation of enormous amounts of debt and the printing of money to monetize that debt. “My generation has borrowed a lot of money and left the next generation with a broken-down infrastructure.” – Ray Dalio
    • Internal political and ideological conflict. Is it hard to imagine that neither side will accept losing in 2024?
    • International power equivalency and reorganization. The gap is narrowing for the United States as the world’s economic and military superpower.
    • Continue reading for elaboration on these points, as well as comments on the state of capitalism and the wealth gap
  • “The amount of value in financial wealth (stocks, bonds, etc.) dwarfs the total amount of real wealth, and that’s a problem because there’s no purpose in financial wealth other than to buy real wealth” – Ray Dalio
    • When this ratio gets too large, you get monetary inflation
    • Dalio believes there is an open competition for what real wealth asset will emerge as the best store of wealth
  • Pain + Reflection = Progress
    • Mistakes are opportunities to learn. Humility balances audacity.

Intro

  • Ray Dalio (@RayDalio) is the founder and co-chairman of Bridgewater Associates, one of the largest hedge funds in the world. He is currently promoting the release of his most recent book, The Changing World Order, which analyzes why nations succeed and fail.
  • Ray Dalio & Zachary Crockett discuss the current status of the United States on a global scale, what a rising national debt means for the future, and much more.
  • Host: Zachary Crockett (@zzcrockett)
  • Check out more Podcast Notes with Ray Dalio

“Those Who Don’t Know History are Destined to Repeat it”

  • “Whenever you’re living through a time that you haven’t lived through before, you might want to check history” – Ray Dalio
    • Just because it hasn’t happened in your lifetime, doesn’t mean it hasn’t happened at some point in history
    • For example: Dalio studied the 1929-33 debt bubble to accurately anticipate the 2008 crash. He wasn’t alive then, but he still applied the lessons.
  • The Big Cycle – 18 step historical process for the rise and fall of an empire that Dalio explains in his book, The Changing World Order
    • “We’re in the riskier part of the cycle, which is the cycle before wars” – Ray Dalio
    • While we are at the brink of this step, it does not mean it is inevitable. The world has more resources than ever, so war isn’t a necessity if we can properly negotiate peace.

What’s Driving the Debt Crisis?

  • Creation of enormous amounts of debt and the printing of money to monetize that debt
    • Results in inflation and tightening of monetary policy—both take buying power away from the consumer
    • “Creating credit stimulates and everybody wants everything to go up. So, whenever you get into a bad situation, you get this very heavy dose of stimulation.” – Ray Dalio
    • “My generation has borrowed a lot of money and left the next generation with a broken-down infrastructure” – Ray Dalio
    • Dalio believes we will have an extended period of stagflation:  A period in which the inflation rate is high and the economic growth rate slows
  • Internal political and ideological conflict
    • Both sides are so extreme that what they want is more important than the democratic system—is it hard to imagine that neither side will accept losing in 2024?
    • A strong bipartisan middle is the only path to proper reform – “I almost don’t care what’s done, as long as it’s bipartisan” – Ray Dalio
  • International power equivalency and reorganization
    • Dalio believes that it is inevitable that China will be a ‘comparable power’ and is ‘likely, but not certain’ to pass the United States
    • The war in Ukraine is teaching us a lot about global allegiances—who is lining up in support of Russia (China, India, Middle Eastern Countries) and who is lining up in support of Ukraine (United States and the EU)
    • “I think that top spot is way exaggerated as being important” – Ray Dalio referencing how costly it is to maintain worldly control from a military perspective
  • The current form of capitalism falls short in delivering basic results
    • The bottom 60% of the population have not had a rise in living standard (per capita income) since 1980
    • Investments in education and infrastructure will help create more fairness, which will inherently rebalance capitalistic opportunities
  • “I think that there needs to be a transfer of wealth and that’s going to have to come significantly from taxes, and the wealthy can pay for it better. So I think it’s inevitable that that would and should come.” – Ray Dalio
    • Wealth taxes are tricky because you must have an accurate system for evaluating the value of assets. Many of these assets are illiquid, so how do you get the cash to pay the tax?
    • Inheritance taxes may be a more effective way of enacting a wealth tax

Dalio’s Opinion on Bitcoin and Financial Markets

  • Dalio does not think central banks will hold Bitcoin as a reserve currency
    • Its transparency and decentralization maybe it’s own demise. Since it’s not private, governments can monitor and control it if they really wanted to.
    • Based on what we’ve seen lately, we can’t trust the government to control the monetary system, and “if Bitcoin became too much of a good alternative, they’d get rid of it” – Ray Dalio
  • “I think too much is being made of Bitcoin” – Ray Dalio
    • The market cap for Bitcoin is roughly $600 billion, while Apple and Microsoft are around $2 trillion
  • There’s an open competition for the best store of wealth
    • Dalio predicts tangible assets could be the short-term winner
  • “The amount of value in financial wealth (stocks, bonds, etc.) dwarfs the total amount of real wealth, and that’s a problem because there’s no purpose in financial wealth other than to buy real wealth” – Ray Dalio
    • When this ratio gets too large, you get monetary inflation

Lessons from Ray Dalio

  • Pain + Reflection = Progress
    • Humility balances audacity. It took an incorrect bet on the economic crisis in 1982 for Dalio to learn how to diversify his investments and be more open-minded to the opposing point of view.
    • Mistakes are an essential part of learning. “A painful mistake, I now view as a puzzle. If I solve the puzzle, I will get a gem…the gem is a principle that will help me through all the times in the future.” – Ray Dalio
  • “In order for me to make money, I have to bet against the consensus, because the consensus is built into the price” – Ray Dalio
    • There’s great power in being able to see when the consensus is wrong
  • Improvisation is an expression of creativity that comes from the subconscious
    • Meditation can help you consciously learn about your subconscious intuition—understanding this will help you make better decisions
  • Common traits of highly successful people:
    • Curious, independent thinkers
    • Ability to see the full range of the big picture down to the small details
    • Ability to be both systematic and creative
    • Always seeking a challenge, seeing themselves as ‘not-knowing’ rather than ‘knowing’
    • Work and passion are the same things
    • Values good relationships, you can’t do it on your own
  • Check out Ray Dalio’s personality tests to see how you score
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Notes By Drew Waterstreet

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