In this latest Cooper Academy video, why Ray Dalio thinks the 2020 crisis will be worse than the 2008 recession comes under review. What’s more, he evaluates why the current environment of debt, low interest rates and record monetary stimulus looks similar to the 1930s great depression era. At the heart of today’s crisis is the potential reset of money and the end of the long-term debt cycle.
To start, Dalio breaks down two components: incomes and balance sheets. He talks about the production of money and credit and how central banks will attempt to solve this problem.
Dalio is now comparing the economy of 2020 to the one that existed between 1930-1945.
Who will pay these bills?
Cooper Investing believes the answer lies in how the economy works and trends throughout history.
Dalio Outlines Four Key Patterns of 1,000 Years of Economic History
Dalio has a way of simplifying complex systems, explaining, “There are four things that are the driving forces of our economy and our lifestyle and wealth.”
Dalio explains, “And, the first and most powerful is productivity. Which comes from people learning and inventing and doing things well.”
2. Short-term debt cycle.
Dalio notes, “The short term debt cycles is you know recession and expansions and booms and recessions. They last about 8-10 years.”
3. Long-Term Debt Cycle
On the critical issue of the U.S. Dollar, Dalio believes, “Which goes on about once every 50-75 years is when you begin a new type of money. And a new type of credit. That began in 1945, the new world order at the end of WWII, and with the Bretton Woods Monetary system, created a new monetary system in 1945. A new money.”
“Still, 70% of the money and credit that exists in the economy is running by dollars, and what you have traditionally is the breakdown.”
For Ray, “Politics is largely how we deal with each other.”
He talks about the difference between internal politics and external politics.
“And you have a situation when there is a rising power challenging an existing power, there is competition, and there is a risk of war. And so how they deal with each other, whether there is a greater good or whether they are fighting with each other, is the defining moment.”
Long-Term Debt Cycle Ending | Safety in Diversification
Cooper Academy notes it has been exactly 75 years since the start of the current long-term debt cycle.
The host believes many of the same afflictions from the early 1930s now plague the U.S. and global economy.
Finally, Cooper Academy breaks down Ray Dalio’s All-Weather Portfolio, diversified to weather any economic storm. There is no doubt we are now in uncharted waters. The money printing and bailouts have run amuck, and someone will be left holding the tab. With default not an option, debt monetization and the debasement of our currencies is coming. All of these factors, along with the likely end of the long-term debt cycle could present challenges for the U.S. dollar moving forward.