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Ray Dalio you have to allocate capital regardless of the environment as the backdrop. And you've been doing that for years very effectively it's not even just in 2018. You were up almost 15 percent in the face of all of what we are talking about increasing debt levels global slowdown and so many other things. Tell us how you see the backdrop and how you do allocate capital in this environment. Well.
You might say the backdrop. Maybe start with a template.
I think over a period of time there's productivity and the growth rate of productivity is the most important thing you learned more you invent or you become more efficient and that rises. Then we have cycles around that we have normal business cycles short term debt cycle and then there is a longer term debt cycle which has to do with the capacity of leveraging up being limited when you approach zero interest rates or limitations in terms of the effectiveness of quantitative easing.
So that framework is what I use when I'm looking at China when I'm looking at any country. I think we make. Bigger picture. I think we are in the later stages of the short term debt cycle meaning maybe we're in the seventh or eighth inning of that and that there was. An inappropriate mistaken desire to tighten monetary policy at a level that was faster than the capital markets could handle. And as a result we had a correction we had 70 basis points change in rates. We had a.
An important change in Fed policy regarding what the direction of Fed policy will be in that tightening but we're in the later stages of the cycle when asset prices are fully were fully priced and still are somewhat fully priced. I think the key question like if women look at each country when you look at China look at Europe look at the United States we will be a nice slowing economic environment. That growth rate will slow and and probably in a self reinforcing process I think. But the question really is whether monetary policy is denominated in one's own currency. These are all cycles of the cycle like in China. I agree it's one of those cycles. People pay attention to but they have the power. The debt is in their currency. They can handle that's that cycle. But there is a weakening there. There is a slow a slowing certainly a substandard growth rate in Europe and in the United States there will be a significant slowing in that particular period which would warrant an easier monetary policy. The bigger issues. So these are the cycles and then there's constraints of monetary policy for being able to deal with that then the bigger issues really connected to politics and and the economic policies associated with that. For example when we cut corporate taxes and we also made interest rates low enough that it was attractive to borrow to buy financial assets particularly by companies having mergers and acquisitions that caused a lot of growth in corporate debt and that growth in corporate debt was used to finance those purchases which so supported the financial markets. So that is going to be less so I think that probably next year the slow up and then the beginning of thinking about politics and what that might effect economic policy beyond something like the talk of the 70 percent income tax for example will play a greater role. So I think that that's if I'm covering the world us and we are live in a world economy US Europe China all of those will be experience a greater level of slowing probably a greater level of disappointment. And I think there's a reasonable chance that by the end of that that the monetary policy and fiscal policy will have to become easier relative to what is now discounted in the markets.
Well I think you make such an important point because for a decade we had such low interest rates zero. And you know such easy monetary policy not just in the United States but across the world as you see that being removed it has to be disruptive. Right. And I think at the end of the year markets were reacting to the unwind of the Federal Reserve's balance sheet as much as the raising of interest rates so I ask you do we even have the wiggle room if you will. In terms of cutting rates where they are.
No I think you could look at the level of interest rates and compare that to zero and think about that times the duration of the assets. And that is the power of.