Ray Dalio the CEO of Bridgewater Associates, recently sat down for an interview with Maria Bartiromo. Bridgewater Associates is the world’s largest hedge fund, with over $125 billion in assets. The fund which produced spectacular returns last year, is down 3% this year.

Wall St Guru Ray Dalio

Ray Dalio rarely conducts interviews, but he gave over one hour of his time to discuss a variety of topics on economics. Throughout the interview, Dalio explains complex financial topics in a simple manner for people with a non financial background to understand.

Ray Dalio discusses deleveraging and the exact meaning of the word, used so often by the media.

With regards to Europe, Dalio sees the ‘Troika’ managing the deleveraging in Europe. There will be a big social question in regards to the deleveraging, as many European countries will suffer as a result.

Dalio does not think the crisis will end anytime soon. There will be cycles of up and down markets, and that will happen in both Europe and the US. The whole process could take a total of 15 years. Printing money is not enough, the transactions much be tracked. The key is where the money goes. If someone buys a Treasury it is a long process until someone buys a house or a car. Central Banks can buy assets but not goods, while the Government can do the exact opposite.

Dalio is not sure what stage of the process the US has gone through. He notes that is not easy to answer, but Japan is a good example. Japan’s total debt to GDP is 500%, while Government debt to GDP is closer to 270%. In terms of the US, there is a much lower debt load.

The current debt loads are unsustainable, but there can be a large number of buyers for many years. The world has lots of liquidity and buying of Treasuries or Japanese bonds depends on what buyers can find. Dalio thinks that buyers will not stop until inflation signs pick up, since the alternatives could be worse. Dalio stresses that people must view the process through the perspective of the buyer.

Dalio says that the US must implement some austerity, but the Government has to worry about the social consequences. Another downturn could create class war-fare and bring to power an Adolf Hitler type of character. Hitler rose to power as Germany experienced terrible economic woes in the late 1920s and early 1930s.

Dalio is more worried about deflation than inflation.

Dalio believes that our politicians are not cognizant enough of these risks.

The  full video interview with Ray Dalio is embedded below:

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