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

Zhao Weiguo: China’s No. 1 chip tycoon vanishes
People

Zhao Weiguo: China’s No. 1 chip tycoon vanishes

Zhao Weiguo rode a decades-long boom in China pursuing Beijing’s core industrial policy of semiconductor self-sufficiency. Then he fell foul of Xi Jin…
5 Aug 2022
Jennifer Lopez: the American dream on steroids
People

Jennifer Lopez: the American dream on steroids

Jennifer Lopez built a business empire on top of an entertainment career, thereby paving the way for the likes of Reese Witherspoon and Gwyneth Paltro…
31 Jul 2022
Herbert Diess: VW CEO runs out of road
European stockmarkets

Herbert Diess: VW CEO runs out of road

Herbert Diess’s tenure at VW came to a premature end after he fell foul of the group’s powerful owners. Matthew Partridge reports
27 Jul 2022
Ruja Ignatova: the crooked cryptoqueen
People

Ruja Ignatova: the crooked cryptoqueen

Ruja Ignatova’s charm and guile, honed in the dark markets of post-Soviet Bulgaria, persuaded millions to invest in OneCoin, her Ponzi scheme. Then sh…
24 Jul 2022

Most Popular

Are UK house prices set to fall? It’s not so simple
House prices

Are UK house prices set to fall? It’s not so simple

Figures suggest UK house prices are starting to slide, but we shouldn’t take these numbers at face value, explains Rupert Hargreaves.
11 Aug 2022
Is gold cheap relative to equities?
Gold price

Is gold cheap relative to equities?

Dominic Frisby looks at the Dow-gold ratio and explains why gold is starting to appear inexpensive compared to equities.
12 Aug 2022
Share tips of the week - 12 August
Share tips

Share tips of the week - 12 August

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
12 Aug 2022