Ray Dalio puts his theory of how the economy works to video. (My thanks to Dan who brought it to my attention)
Faithful readers will know I have been poking fun at Dalio's analysis since I came across his "beautiful deleveraging" meme.
"Bridgewater reports in its most recent big picture summary, the "beautiful deleveraging" is now far less likely.
My last shot at Dalio was in a reply to a comment from Brent in this post.
I would note the very first graph of the Bonddad post shows total HH liabilities have declined about 8% from their peak and flat lined for the last year or more (eyeball estimate). Doesn't look like a sufficient nor smooth deleveraging when compared with the HH debt to GDP declines 3 times larger (in the next slide) I stick to my story. The poor went bankrupt, the rich got richer
and the (beautiful) deleveraging is not uniform across the income distribution which bodes poorly for stabilizing aggregate demand.
Council of Foreign Relations interview with Maria B.His views on debt, spending, aggregate demand seems to match up with Steven Keen. He says we are in a "beautiful deleveraging". Nominal growth rate of GDP must exceed nominal interest rate (This is a vote in favour of the Fed policy so far - since this is what they have achieved). "The natural move is toward deflation right now -then there is the response of the central banks."
His views seem to be that we are muddling through the crisis, but we could all die if we hit an "air pocket". Depends on the "appropriate" mix of monetary and fiscal policy. And of course political responses that shape both. More details on his views can be found here.
Dalio seems more pessimistic about prospects at the Deadbook conference.
Bridgewater Associates has been the most successful hedgefund over the last two years. Recently its founder, Ray Dalio, was on Charlie Rose. His management style is controversial because among other things he encourages spirited debate on the facts.
Ray believes this is going to be a "lost decade" for the world economy as it deals with the consequences of overleveraging.
He has written the humbly titled "Template for Understanding How the Economic Machine Works and How it is Reflected Now".
The New Yorker did a recent interview:
"Dalio believes that some heavily indebted countries, including the United States, will eventually opt for printing money as a way to deal with their debts, which will lead to a collapse in their currency and in their bond markets. “There hasn’t been a case in history where they haven’t eventually printed money and devalued their currency,” he said. Other developed countries, particularly those tied to the euro and thus to the European Central Bank, don’t have the option of printing money and are destined to undergo “classic depressions,” Dalio said. The recent deal to avoid an immediate debt default by Greece didn’t alter his pessimistic view. “People concentrate on the particular thing of the moment, and they forget the larger underlying forces,” he said. “That’s what got us into the debt crisis. It’s just today, today.”
Dalio’s assessment sounded alarmingly plausible. But when one plays the global financial markets a thorough economic analysis is only the first stage of the game. At least as important is getting the timing right. I asked Dalio when all this would start to come together. “I think late 2012 or early 2013 is going to be another very difficult period,” he said."