Name: Ray Dalio: The Next CRASH Causes & What Should You Do. Ray Dalio on The Economy.
Uploaded: 2018-11-20T16:29:02.000Z
Duration: 20 min 43 s
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ray welcome I say you've written one of
the largest and I have no doubt most

comprehensive analyses of debt crises
that I have ever seen you say this

Reflexive pronouns

pattern repeats itself again and again
why write a book about this well I'm at

a stage of my life that I want to pass
along the principles that helped me this

was really research that was done before
the 2008 financial crisis and it lays

out a template of how these things
happen over and over again in other

words I believe that same things happen
over and over again and if you study the

patterns of them you understand the
cause-effect relationships and then can

write down principles for dealing with
them well we dealt with them very well

in that financial crisis and in other
debt crisis is and I wanted to pass that

template along it's actually only in the
first 60 pages of the book so it's not a

big read if people want to and you're
giving it away for free which is great

so where are we in the current debt
cycle

you often hear lots of talk about debt
obviously we're now ten years as you

note past the financial crisis but debt
still comes up the deficit is ballooning

in the United States where are we in the
cycle I think that there are six stages

to the cycle I'm going to touch on them
briefly

there's the early part of the cycle
where debt is being used to create

productivity incomes and then it can be
serviced well asset prices go up

everything is great and then you come to
the bubble phase of the cycle and in

that bubble phase you're in a position
where everybody extrapolates the past

because asset goes up they think it's
assets are going to continue to rise and

you put you borrow money and they
leverage and when you are in that phase

you do it when we do the calculations
well you could start to see that maybe

you won't be able to sustain that level
of debt growth then you come into the

third phase of the cycle which is the
top that's typically the part of the

cycle when central banks start to put on
the brakes tighten monetary policy and

the like then you come into the down leg
and when interest rates hit 0% you come

into a depression part of that cycle
because monetary policy doesn't work

normally when
interest rates hit zero then you have to

have quantitative easing and you begin
that expansion and then you carry that

along and you begin the cycle carry that
so I think the period that we're in is

very similar to the period that we were
in in the 1930s if I may oh absolutely

explain it okay there are only two times
in the history of this century where we

had debt crisis in which interest rates
hit zero and in both of those times the

central bank had to print money and go
to a different type of monetary policy

which we call quantitative easing and to
buy financial assets and that drives up

in both of those cases the value of
those financial assets and produces a

recovery but it drives interest rates
down to zero or near zero where they are

around the world and that buying in this
case fifteen trillion dollars of

financial assets has put up pushed up
financial assets and drove driven the

interest rates down to zero so it's
caused asset prices to rise it's also

caused populism more populism because
that process creates a gap between the

rich and the poor those who have more
financial assets now see those asset

prices go up and for various other
reasons a wealth gap has developed if

you look at right now
the top 10% of 1% of the populations net

worth is equal about to the bottom 90%
combined that's very similar to the late

30s when we had that stimulation and so
on so we in a situation where we're in

the part of the cycle later part of the
cycle where quantitative easing has been

used most of its energy asset prices are
up interest rates are low and we're

beginning a tightening of monetary
policy very much like we began in 1937

and we have a political situation in
terms of having more of a conflict

between the rich and the poor which is
bringing out a populism populism around

the world
is the selection of strong-minded

leaders who are sort of take charge but
tend to be more nationalistic and so

we're in that type of position and
you've written extensively and

articulately about what happened after
1937 which is we went through a real

surge of populism and nationalism and
got to World War two and all the

horrible things that happened there what
do you think happens now given where we

are
I think the cause-effect relationships

are analogous meaning that if you have a
wealth gap and you have a downturn in

the economy where you're sharing the pie
how do you divide a budget sharing the

budget there's a risk that the both
sides are at odds with each other

there's also a greater international
risk in tensions economic tensions

produce global tensions for various
reasons so I think that in this

expansion we're about in the seventh
inning of a nine inning game let's say

we're in the later part of the cycle the
part of the cycle in which monetary

policy is tightening and there's not
much capacity to squeeze out of the

economy and that as interest rates tend
to rise if they rise faster than is

discounted in the curve it can hurt
asset prices and asset prices are fairly

fully priced at this level of interest
rates at some point we're going to have

a downturn because that's why we have
recessions nobody ever gets it perfectly

and my concern is what that downturn
would be I think that that's not

immediate we don't have the same
pressures but I think it's maybe into

maybe it's in two years I can't say but
I think that that what concerns me is

that it concerns me also internationally
because the situation internationally is

quite similar to the late 30s in that in
the these periods of time these

geopolitical cycles there is an
established power and an emerging power

that then have a rivalry at first it's
an economic rivalry and then it can

become
mystic so back then the United States

and England War One World War one and we
had the peace but then as there was a

rising Germany and a rising Japan there
became that kind of economic rivalry

that became more antagonist ik I think
that we have a situation where there is

a rising China and the United States is
an existing economic power and there is

a rivalry about that and there can be an
antagonism about that so what when I

look at it I think the parallels are
quite similar doesn't mean that the same

outcomes have to happen okay
but does mean that I think we have to be

alerted to the fact that going forward
in a downturn monetary policy will not

be able to be as effective as it was
last time so we have to be cautious

about a downturn I would say err on the
side of having a little bit more leeway

and be and then we have to be concerned
about the wealth gap and the

consequences geopolitically and if we
don't want to repeat what happened in

the late 30s and 40s what do we have to
do what is the having studied history

the right way to handle this and head
that off well I think one of the things

is to make sure the capitalism works for
the majority of people to look at the

bottom 60% of the population and use
that as metrics to say is that improving

or not and how do you approach that
wealth gap it's not just a wealth gap I

think it's more important than the
wealth gap is an opportunity gap that

people need to be made useful by being
able to have jobs and so on so I think

that there should be that should be
considered you know an imperative I