According to Ray Dalio, the coronavirus pandemic was a blow to the system. But in his view, Covid-19 isn’t the biggest game changer.
Instead, the Bridgewater Associates founder said Thursday that he sees the convergence of monetary policy, social and economic gaps, and the rise of China as forces that could change the world.
Dalio shared his views on these changes — and how history informs them — Thursday at a digital event held by the Economic Club of New York.
“It was the shock,” Dalio said of the pandemic. He added that history has shown that these shocks — whether they’re natural disasters, pandemics, or other calamities — become stress tests for a country’s health, financial and otherwise.
But when the pandemic recedes, Dalio said he believes that these issues will remain.
“How do you pay the bills?” he asked. “Are we going to be at each other’s throats? And what do the five wars, the conflicts with China, look like?”
According to Dalio, those conflicts could include a trade war, a technology war, a geopolitical war, a capital war, or a military war.
“I've been going to China for 36 years,” Dalio said. “When I first went there, I gave leaders $10 calculators and they thought they were miracle devices.”
Nowadays, though, America and China's technologies compete on a global stage, he said. One upside for investors in China? They’re still in the first phase of their monetary policy, which means they still have the capacity to lower interest rates, according to Dalio.
Beyond China, Dalio highlighted what he calls “gaps” — large divides in terms of wealth, politics, and views on how to move forward. “The biggest risk is how we are with each other,” Dalio said “There's enough money to go around and there’s enough expertise.”
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Dalio also spoke at length on how the United States may handle monetary policy — and its ever-increasing deficit — moving forward.
“The idea of, let’s say, the cost of balancing a budget means it’s politically impossible,” he said. He added that to cope, a government would either levy higher taxes or spend less money. In his view, neither are politically expedient. Instead, it has historically been dealt with by producing money and credit, “because nobody complains about that.”
According to Dalio, regardless of who wins the upcoming presidential election in the United States, government spending will likely increase. To fund it, he believes that the government will sell bonds. “We'll have to sell a lot of bonds to the world,” Dalio said. “Americans will not have the capacity to buy all of the bonds that will be sold.”
From an investment perspective, Dalio said that the most important thing to him is global diversification through country, asset class, and currency. He added that countries with strong balance sheets and income statements are attractive, especially if they are not “in the crosshairs of the U.S.-China conflict.”