Ray Dalio on Chinese Human Rights

The whole “strict parent” metaphor is wrong. Regardless of whether they were strict or not, a good parent would protect their children from abuse, not “disappear” them and suppress legitimate cases of abuse.

Ray Dalio: Debt Monetization

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another one of your publications is
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carry with me is principles for
00:04
navigating the big debt crisis we follow
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debt levels here we do debt reports debt
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accumulation port set aside some
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statistics this morning are you worried
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about where we are in debt accumulation
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at the household sovereign or global
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level or are we near tipping points as
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you look in debt accumulation around the
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world are you concerned I’m I look at
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things in a very mechanic mechanical way
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and so what concerns me about debt we’re
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in a new world now and what concerns me
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about debt is the nature of the dynamic
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in which you don’t have to service debt
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and what I mean by that is to a larger
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extent than ever before this debt growth
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the maturity of the debt has been
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extended a lot the interest rate becomes
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negative or or near negative so the debt
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service payments for the interest rate
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go down a lot and it’s almost the
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situation where there’s guaranteed debt
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rollovers so principle does not have to
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be rolled over in a number of cases and
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there’s low covenants and so when you
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start to look at this the thing you say
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what is going to cause a debt service
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problem in 2007 we calculated that we
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would have the 2008 financial crisis by
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doing those pro-forma numbers and then
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when we’re dealing now in this seemingly
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crazy or odd other reality in which the
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you don’t have to pay interest and you
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don’t have to rollover your debt and and
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that and then you play with negative
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interest rates you say how do how will
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that work okay and so if we look at
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periods of time in history and we’re
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somewhat those types of things happen
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maybe for example of war years one if we
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look at the war years and we look at ya
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let’s call year-old yield curve
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targeting with the low interest rates
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and the mechanics of that that produces
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a different
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mechanics now so when I look at what’s
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ahead and I think about that and my
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stretches my imagination because I I
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know even beyond that we will have much
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larger deficits so if we not only do we
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have the debts that you’re referring to
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right and their maturities but we have
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will have larger deficits which will
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grow and in addition we have pension
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liabilities and healthcare liabilities
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and other forms of liabilities that will
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come at us
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they’re very cashflow driven because
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you’ll have to make those types of
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payments and so they’re coming at us at
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the same time and then you deal with
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okay how will that be dealt with and
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funded so you have to go through the
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imagination of the fact that they will
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probably be monetized and in other words
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they’ll have debt
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central banks will be in a position that
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they’ll have to buy the debt and so as
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we go from other countries let’s say if
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we go from Japan which 46% of it’s very
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large debt is owned by the Bank of Japan
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and we keep moving that up that’s the
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mechanics that we have in place and so
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when I extend that and I look at that I
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think we are in the last stages or the
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less end of last stages of what is
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currency what is a reserve currency how
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does that monitor that our Fiat monetary
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system work because let’s say currency a
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bond is an asset that is a promise to
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receive a lot of currency okay now how
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do much do I want that and and because
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I’m going to have let’s say a negative
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interest rates are close to a negative
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interest rate so you know then you start
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to think of the arbitrage as do I want
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the paper currency in the thing do I
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want gold do I want some other
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alternative type of currency and then
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increasingly there will de facto be
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taxes on owning that asset because tax a
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negative interest rate is a form of
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taxes and as we go more and more to
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digital currencies the arbitrage between
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putting cat paper in a vault will be
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increasingly eliminated
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so we’re at the when I talk about the
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long-term debt cycle
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I mean that there’s in in the history
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you know you wipe out the debts and then
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you don’t have debts but and then you
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can create the stimulation and that
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happens and you always hit it with a
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jolt of stimulation until then you get
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to interest rates hitting zero or close
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to zero and then they don’t work so
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that’s monetary policy one is interest
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rates monetary policy two is then when
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that doesn’t work you print money and
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you buy it when that doesn’t work you
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have this phenomenon that we’re in we’re
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at the end of the long term debt cycle
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and you have the dynamic so the classic
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debt crisis that we’re looking at is
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doesn’t look like the ones that I’ve
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seen in the past it looks more like the
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ones in the like and at one late-30s
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what we’re at the end of that cycle
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because in the past the way they would
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happen would be you know do you have a
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certain amount of debt central and the
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economy’s overheating central bank
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tightens monetary policy or even that
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you run through and you say what’s the
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debt rollover problem right so we’re not
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going to have the classic debt rollover
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problem we’re not going to have the
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classic tightening of monetary policy so
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when we think about those things and say
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oh we’re going to have a debt problem we
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have things to be concerned about in the
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way I’m describing but they’re not going
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to be the classic ways that this has
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come to an end if we can’t afford the
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liabilities and I agree that if you look
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at the net present value of the US
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government’s entitlement programs that
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the gap the net present value is about
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35 trillion and add to that 20 trillion
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and federal debt and we’re adding a
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trillion a year so huge sums of money if
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to your point that we end up cancelling
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or reducing those liabilities for every
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liability that’s an asset so someone
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who’s holding that asset is going to be
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poor and there could be a distributional
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piece of that so making to your point if
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we simply write off the debt we’re
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destroying a tremendous amount of growth
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so the way that it’ll be done is by
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printing it and evaluating the currency
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because that’s the very subtle way and
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it’s also
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looks it looks good because when you
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have a currency depreciation first of
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all it’s very hidden tax right let’s put
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a negative interest rate it’s not like a
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tax rate change that’s a that’s
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controversial you just have a negative
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interest rate and okay that’s one that
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form of tax and when you have a currency
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depreciation it causes one’s assets to
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go up
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it’ll be inclined to make the stock
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market go up depreciate the currency I
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was one of my great lessons I was
clerking on the floor of the New York
Stock Exchange in 1971 when the August
15 1971 Sunday night
Nixon floated the dollar right and I
went on the floor of the New York Stock
Exchange that clerking and I thought wow
we have a real crisis here and the stock
market rose the most in my lifetime
because a currency depreciation also
tends to raise asset prices in various
ways so the the if you’re in that
position the hidden way the effective
way to do that is to monetize the debt
and have the depreciation as distinct
from like you write it down and like you
say somebody’s assets that doesn’t work
we cover these things in that book by
the way that book if you’re interested
principles for navigating big debt
crisis is available free online at
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economic principles calm but it’s so
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these things have happened over and over
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again
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I think mechanistically it means that we
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will print the money that doesn’t mean
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necessarily inflationary okay like in
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the 1930s we had a series of currency
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depreciations a lot of printing of money
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but you also had the other forces that
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meant that and so the Dinah I think
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it’ll be kind of seemingly hidden but
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it’ll but we’re still right close to the
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point where nobody that you may not want
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to own those bonds okay and you’ll look
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for what else and the question is what
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else what is that else okay that’s the
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environment I think that will be it and
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you know there’s a
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that gold is the only asset you can have
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that’s not somebody else’s liability so
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anyway I don’t know what those
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alternatives are but I would say if more
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gold is more likely than the

Ray Dalio: History Teaches us that Inequality is Dangerous

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the references you make here goes to 30s
and referencing cow you know the top 1%
in the 30s versus today you know you
showed this that the top 1% in the 30s
versus today you know top 1% income
share has the same amount as the bottom
90% in the last time it was like that in
the authorities are you kind of
suggesting that we may be facing what
happened in the 30s years or no yes I’m
saying you so that is why I’m saying
there are three major divisions okay
three major forces and that force which
i think i emphasized the opportunity gap
not just the wealth gap but they both
matter if you look at history across
countries across timeframes
and you say when there’s a large income
and wealth gap and you have an economic
downturn you have a dangerous fight on
your hands you have a dangerous set of
circumstances history has taught us that
you said in April income inequality is
the biggest crisis we have in America on
60 minutes and I think in recent a
couple months ago you said wealth
inequality those are the two main things
that we ought to become I’m not saying
an even more fundamental those are the
outcomes and even more fundamental is
opportunity in quality and production
inequality because at the end of the day
just like you said we have to find how
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Bridgewater’s Ray Dalio Discusses the Impact of China’s Growth on the World Economy

Over the last 40 years, China’s rapid economic expansion has altered the world’s geopolitical and economic landscape. Bridgewater’s Founder, Co-CIO and co-Chairman Ray Dalio joins Bridgewater’s Senior Portfolio Strategist Jim Haskel to discuss the historical arc of this growth and why the portfolio characteristics of China’s markets are attractive and diversifying despite escalating global tensions. To learn more visit: https://www.bridgewater.com/china/ To skip to specific sections in the video please find chapters marked below: The US-China Conflict – 4:38 Investing in China – 11:30 Public and Private Markets in China – 20:32 Portfolio Characteristics of Chinese Markets – 24:47 Looking Ahead – 27:53
To skip to specific sections in the video please find chapters marked below: The US-China Conflict – 4:38
Investing in China – 11:30
Public and Private Markets in China – 20:32
Portfolio Characteristics of Chinese Markets – 24:47
Looking Ahead – 27:53

Modern Monetary Inevitabilities

ALEXANDRIA, VIRGINIA – In a recent Project Syndicate commentary, James K. Galbraith of the University of Texas at Austin Modern Monetary Theory and corrects some misunderstandings about the relationships among MMT, federal deficits, and central-bank independence. But Galbraith does not explore what is perhaps the most important issue of all: the political conditions needed to implement MMT effectively.

MMT owes its newfound relevance to the fact that deflation, rather than inflation, is becoming central banks’ main concern. For a high-debt, high-deficit economy like the United States, deflation is an especially serious threat, because it delays consumption and increases debtor anxiety. Consumers forego major purchases on the assumption that future prices will be lower. Homeowners with mortgages cut back their spending when they see home prices falling and the equity in their homes declining. These cutbacks worry the Federal Reserve, because they add to deflationary pressures and could trigger deeper spending cuts, stock-market declines, and widespread deleveraging.

The Fed’s inability so far to reach its 2% target for annual inflation suggests that it lacks the means to overcome persistent disinflationary forces in the economy. These forces include increased US , which diminishes aggregate demand by weakening employee bargaining power and increasing income inequality; population aging; inadequate investment in infrastructure and climate-change abatement; and technology-driven labor displacement. Making matters worse, US political gridlock assures continued commitment to economically exhausted strategies such as tax cuts for the rich, at the expense of investment in education and other sources of long-term growth. These conditions cry out for significant changes in US government spending and tax policies.

MMT is seen as a way to accomplish the needed changes. It holds that a government can spend as much as it wants if it borrows in its own currency and its central bank can buy as much of the government’s debt as necessary – as long as doing so doesn’t generate unacceptably high inflation. Both tax-cut advocates and supporters of public investment find little not to like.

MMT has been roundly criticized by economists across the political spectrum, from Kenneth Rogoff and Lawrence H. Summers of Harvard University to Paul Krugman of the City University of New York. All contend that it is a political argument masquerading as economic theory. But Galbraith and Ray Dalio of Bridgewater Associates see MMT differently. Dalio argues that MMT is real and, more to the point, it is an inevitable policy step in historically recurring debt-cycle downturns.

In his book Principles for Navigating Big Debt Crises, Dalio documents the steps that central banks have historically taken when faced with a booming economy that suddenly crumples under the weight of debt. The first step (Monetary Policy 1, or MP1) is

  1. to cut overnight official rates to stimulate credit and investment expansion. The second (MP2)
  2. is to buy government debt (quantitative easing) to support asset prices and prevent uncontrollable waves of deleveraging. If MP1 and MP2 are insufficient to halt a downturn, central banks take step three (MMT, which Dalio calls MP3) and
  3. proceed to finance the spending priorities that political leaders deem most essential. The priorities can range from financing major national projects to “helicopter money” transfers directly to consumers.

Achieving political agreement on what to finance and how is essential for implementing MP3 effectively. In a financial meltdown or other national emergency, political unity and prompt action are essential. Unity requires a strong consensus on what should be financed. Speed requires the existence of a trusted institution to direct the spending.

In the early 1940s, when the US entered World War II and winning the war became the government’s top priority, the Fed entered full MP3 mode. It not only set short- and long-term rates for Treasury bonds, but also bought as much government debt as necessary to finance the war effort. MP3 was possible because the war united the country politically and gave the Roosevelt administration near-authoritarian rule over the economy.

The core weakness of MP3/MMT advocacy is the absence of an explanation of how to achieve political unity on what to finance and how. This absence is inexcusable. Total US debt (as a share of GDP) is approaching levels associated with past financial meltdowns, and that doesn’t even account for the  associated with infrastructure maintenance, rising sea levels, and unfunded pensions. For the reasons Dalio lays out, a US debt crisis requiring some form of MP3 is all but inevitable.

The crucial question that any effort to achieve political unity must answer is what constitutes justifiable spending. Alexander Hamilton, America’s first Secretary of the Treasury, offered an answer in 1781: “A national debt,” he wrote, “if it is not excessive will be to us a national blessing.” A government’s debt is “excessive” if it cannot be repaid because its proceeds were spent in ways that did not increase national wealth enough to do so. Debt resulting from tax cuts that are spent on mega-yachts would almost certainly be excessive; debt incurred to improve educational outcomes, maintain essential infrastructure, or address climate change would probably not be. Accordingly, it will be easier to achieve political unity if MP3 proceeds are spent on priorities such as education, infrastructure, or climate.

The political test for justifying MP3-financed government spending, is clear: Will future generations judge that the borrowing was not “excessive”? Most Americans born well after WWII would say that the debt incurred to win that war was justified, as was the debt that financed the construction of the Interstate Highway System, which literally paved the way for stronger growth.

As the 1930s and 1940s show, MP3 is a natural component of government responses to major debt downturns and the political crises they trigger. We know much more about what contributes to economic growth and sustainability than we did in the first half of the twentieth century. To speed recovery from the next downturn, we need to identify now the types of spending that will contribute most to sustainable recovery and that in hindsight will be viewed as most justified by future Americans. We need also to design the institutions that will direct the spending. These are the keys to building the political unity that MMT requires. To know what to finance and how, future Americans can show us the way; we need only put ourselves in their shoes.