Consider the scenario recently spelt out by the American billionaire hedge fund manager Ray Dalio, who predicted the 2008 financial crisis.
Two years from now, unfunded American pension and health-care obligations will mean the US will “have to sell a lot of Treasury bonds [and] the Federal Reserve at that point will have to print more money to make up for the deficit, have to monetize more and that’ll cause a depreciation in the value of the dollar”. It could, said Mr Dali depreciate by as much as 30%”.
To understand why Mr Dalio’s opinion matters, consider his record. In 2007, he predicted that the housing-and-lending boom would end badly. Then he warned the Bush Administration that many of the world’s largest banks were on the verge of insolvency. His investment firm Bridgewater Associates is one of the world’s largest hedge funds. As of January, he was ranked one of the world’s 100 wealthiest people. And Mr Dalio’s financial acumen was evident from very young – he started investing at age 12. By the time he started college, he had built up a stock portfolio worth several thousand dollars. Back in 2011, The New Yorker described Mr Dalio as follows: “Dalio is a ‘macro’ investor, which means that he bets mainly on economic trends, such as changes in exchange rates, inflation, and GDP growth.”
Anyway, the future Mr Dalio spells out is entirely possible, considering the US has been borrowing too much for years, something that has been ramped up even more under President Donald Trump.
Mr Dalio’s opinion must give us pause for thought.