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.
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."
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
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.
-
8 of the best houses for sale with home cinemasHouses for sale with home cinemas – from a modern oast-house style property in Kent to a house in Buckinghamshire with Dolby sound and bespoke seating
-
Rachel Reeves faces £23 billion capital gains tax “black hole” – will she be forced to look elsewhere?The fiscal watchdog has downgraded its forecast for capital gains tax revenues, leaving chancellor Rachel Reeves with £23 billion less than previously expected
-
The return of Janet YellenProfiles Janet Yellen, the former US central-bank chief is back, this time as US Treasury secretary. Donald Trump wondered whether she was too short for the job – she is now seen as a towering figure.
-
Paul Volcker: the banking ace who crushed inflationProfiles Paul Volcker, who died last week aged 92, was an inspirational figure whose controversial policies helped inaugurate the modern era.
-
Marc Faber: The Fed will destroy the world
Features The Federal Reserve's endless money printing will make the rich richer, says investment guru Marc Faber. That's until it ushers in the end of the world economy. James McKeigue reports.
