Ray Dalio: beware a dollar slump

Ray Dalio, founder of Bridgewater Associates, the world’s biggest hedge fund, has warned the dollar could lose almost a third of its value.

915_MW_P16_Strategy_Side

184290711

malerapaso

Ray Dalio (pictured), founder of Bridgewater Associates, the world's biggest hedge fund, has warned the dollar could lose almost a third of its value in the relatively near future. He reckons the US currency could face a "crisis" two years from now, as the gap between government spending and tax receipts expands sharply in the wake of US president Donald Trump's tax cuts.

915_MW_P16_Guru

90084115

2016 Getty Images

By then, the boost that the US economy has experienced from recent tax cuts will have faded and the economy will be weakening. However, at the same time the government will be forced to boost its spending on various long-term obligations such as pensions and healthcare.

The risk, says Dalio, is that the US won't be able to sell enough government debt (Treasuries) to fund its growing budget deficit. But nor will it be willing to risk choking off growth by raising interest rates. As a result, the Federal Reserve the US central bank will have to print money to fund the gap. This direct monetisation of the deficit will help weaken the dollar, sending it down by around 30% in all. "It'll be more of a dollar crisis than a debt crisis," Dalio told Bloomberg's Erik Schatzker, "and I think it'll be more of a political and social crisis."

Dalio who has also consistently drawn parallels between the 1930s and today's surge in populist politics has recently released Bridgewater's exhaustively-researched guide to financial crises, A Template for Understanding Big Debt Crises, which can be downloaded free from his website, Principles.com.

Recommended

The charts that matter: the US dollar keeps on strengthening
Economy

The charts that matter: the US dollar keeps on strengthening

The US dollar saw further rises this week as gold and cryptocurrencies sold off. Here’s how that has affected the charts that matter most to the globa…
27 Nov 2021
Rafal Brzoska: the “Locker King” seeking to conquer Britain
People

Rafal Brzoska: the “Locker King” seeking to conquer Britain

Polish entrepreneur Rafal Brzoska’s company almost drowned in debt before being rescued and refocusing on its big idea – automated postal boxes. He is…
27 Nov 2021
Turkey heads for a currency crisis as the lira plummets
Currencies

Turkey heads for a currency crisis as the lira plummets

The Turkish lira has lost 40% of its value so far this year after the central bank bowed to pressure to cut interest rates.
26 Nov 2021
Vivek Ramaswamy: beware of the "woke industrial complex"
Investment strategy

Vivek Ramaswamy: beware of the "woke industrial complex"

Merryn talks to author and investor Vivek Ramaswamy about how big fund managers are using ESG investing to undermine the foundations of democracy.
26 Nov 2021

Most Popular

Don’t worry about the global population explosion – it’s unlikely to happen
Investment strategy

Don’t worry about the global population explosion – it’s unlikely to happen

One of the many things we are taught to worry about is the fast-rising global population. But in fact, says Merryn Somerset Webb, the opposite is tru…
15 Nov 2021
Four of the best new investment trust listings
Investment trusts

Four of the best new investment trust listings

Diversify your portfolio and benefit from rising dividends with these four new investment trusts coming to the market soon.
15 Nov 2021
Is it time to remortgage your home?
Mortgages

Is it time to remortgage your home?

Banks are already starting to prepare for higher interest rates, says Alex Rankine. Should you, too?
23 Nov 2021