Thursday, July 28, 2011


From a profile of hedge fund boss Ray Dalio in the July 25th New Yorker:
This spring, he told me that economic growth in the United States and Europe was set to slow again. This was partly because some emergency policy measures, such as the Obama Administration’s stimulus package, would soon come to an end; partly because of the chronic indebtedness that continues to weigh on these regions; and partly because China and other developing countries would be forced to take drastic policy actions to bring down inflation. Now that the slowdown appears to have arrived, Dalio thinks it will be prolonged. 'We are still in a deleveraging period," he said. "We will be in a deleveraging period for ten years or more."

Dalio believes that some heavily indebted countries, including the United States, will eventually opt for printing money as a way to deal with their debts, which will lead to a collapse in their currency and in their bond markets. "There hasn’t been a case in history where they haven’t eventually printed money and devalued their currency," he said. Other developed countries, particularly those tied to the euro and thus to the European Central Bank, don’t have the option of printing money and are destined to undergo "classic depressions," Dalio said. The recent deal to avoid an immediate debt default by Greece didn’t alter his pessimistic view. "People concentrate on the particular thing of the moment, and they forget the larger underlying forces," he said. "That’s what got us into the debt crisis. It’s just today, today."

Dalio’s assessment sounded alarmingly plausible. But when one plays the global financial markets a thorough economic analysis is only the first stage of the game. At least as important is getting the timing right. I asked Dalio when all this would start to come together. "I think late 2012 or early 2013 is going to be another very difficult period," he said.
Especially regarding Europe, I agree. The problem wasn't just that European nations sold their sovereignty to the EU--it's that it's become apparent that Germany overpaid.


Whitehall said...

The US Federal Reserve has certainly done its part by almost doubling the dollar supply since 2007.

This has always seemed largely a response to the huge fiscal deficits of the Democratic Congress and the Obama Administration although there was an immediate need right after the money market lockup back in 2007.

OBloodyHell said...

>> It's that it's become apparent that Germany overpaid.

The real concern, as always, is, will Germany demand Paris as a part of the repayment assets?


OBloodyHell said...

Eh, I hate to say it, but, while the Dems have certainly had a MASSIVE hand in this, the GOP can't absolve itself of guilt, either.

They've continually allowed the Dems to paint them inaccurately, and to make them into the Grinch, then yielded on point after point to try and refute that claim.

This is a PR issue -- the GOP needs to stop letting the Mommy Dems make them into the Bad Daddy, who then needs to buy his children's affections with gifts and the like.

Spending has generally been exceptionally bad under the GOP -- it's just substantially worse under the Dems.

BOTH sides need to stop behaving like drunken frat boys on their first road trip with daddy's gold card.

Anonymous said...

How much employment did the Republican Bush tax cuts generate?

Why weren't the Republicans peeved when Republican George Bush dissolved the surplus Democrat Bill Clinton created and started this gross upward spiral of rampant government spending?

House Republicans and Tea Partiers have offered nothing at all that would create jobs for the unemployed. The FAA fiasco is just another expression of their irresponsibility, callousness and long-term stupidity in destroying the US economy. Since they have the most money, they will be the greatest losers. Maybe they feel guilty about the harm they have caused the poor, middle-class, children and senior citizens.