March 3, 2025 • 56 mins
Almost whichever way you measure it, the US has a lot of debt. And, with the Trump administration recently proposing a budget that would see US debt levels swell even further, it doesn't look like this issue is going away any time soon. In this episode, we speak with Ray Dalio, the billionaire founder of the hedge fund Bridgewater Associates and the author of the new book, How Countries Go Broke. We talk about how he thinks about debt cycles, the catalyst for when high levels of debt become an immediate problem, what a debt crisis actually looks like, and what the US needs to do to avoid a "heart attack" debt crisis within the next three years. We also speak about what investors should do in these scenarios, including Ray's thoughts on things like Bitcoin and gold. And, of course, we also speak about his role in helping create the Chicken McNugget.
Read more:
The Stories We Tell Ourselves About Bonds
‘Mar-a-Lago Accord’ Chatter Is Getting Wall Street’s Attention
Odd Lots is coming to Washington, DC! Get your tickets here.
See omnystudio.com/listener for privacy information.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2 (00:18):
Hello and welcome to another episode of the Authoughts podcast.
I'm Tracy Allaway.
Speaker 3 (00:22):
And I'm Joe Wisenthal.
Speaker 4 (00:24):
Joe, have you.
Speaker 2 (00:24):
Ever seen those visuals of a trillion dollars where it's like,
here's one hundred, here's one hundred dollar bill, here's a
stack of ten thousand dollars, here's a million dollars, and
eventually you get to one trillion, and it's just all
these palettes of notes that are worth a billion each
and they're like covering the size of a football field
(00:45):
or something, and they're double stacked.
Speaker 3 (00:47):
I love that. I never really know what they mean.
It's like, oh, this is as big as the Statue
of Liberty or something like that, and it's like, okay,
like I mean that is objectively big.
Speaker 4 (00:57):
I get.
Speaker 3 (00:57):
Is that a good way to visualize mine in terms
of what it means? I don't know, but yes, money,
especially your small denomination bills, can really pile up before
you get to real value.
Speaker 2 (01:09):
Well, okay, speaking of big numbers, the US budget deficit
was about one point eight trillion in twenty twenty four,
so if we stick with the visual, almost almost two
football fields of double stacked palettes of one billion dollars each.
So okay, quite a lot. But I think this ill
we saws, I know, but we didn't see a trillion dollars.
(01:31):
We saw billions. And I think this kind of illustrates
one of the really difficult things about finance and debt,
which is all of us, as you mentioned earlier, kind
of struggle to grasp the scale of these numbers that
are involved here, and one point eight trillions seems so
abstract that we have to describe it using football field
(01:54):
analogies or whatever else. And if we can't really grasp
the scale of the debt because it's just this number
that no one really understands or even takes seriously, then
it feels like it's difficult to tackle to solve.
Speaker 4 (02:08):
Right.
Speaker 3 (02:08):
Well, I'll say two things on that. I mean, I
think a you have to question, like, at any given point,
what isn't a called economy solving for right? And so
people have anxiety about the size of the debt and
the deficit. And then it's like, but you know a time,
you know, there's also.
Speaker 2 (02:24):
A high and they also have anxiety about social services, yeah.
Speaker 3 (02:28):
And things like that, And then there is also the
question of you know, we think of a household or
any entity as like you have to have money to
pay your bills. Are there other dynamics besides numbers that
cause a financial crisis. So, for example, you could have
a country with very high debt to GDP and it's
(02:48):
fine because you know, it goes on for longer than
people expect. And you can have countries with low debts
and deficits, but because they have an internal political crisis
because people no longer have confidence in the government of
this to pay it back. You can have a crisis
even at low levels. And so even thinking about what
does it mean to solve a debt, talk about debt
(03:08):
at the national level is simultaneously a financial discussion and
one about political confidence.
Speaker 2 (03:14):
A social conversation. All right, Well, on that note, I
am very happy to say that I think we have
the perfect guest to talk about all of these things,
someone who has consistently had some very big thoughts about
these very big numbers. We're going to be speaking with
Ray Dallio, the legendary founder of Bridgewater, the author of
numerous books, including a new one titled How Countries Go Broke,
(03:38):
principles for navigating the big debt cycle, and most importantly,
a key player in the invention of the chicken nugget.
I am very excited. Ray, Welcome to the show.
Speaker 4 (03:49):
Wow, what an introduction. Thank you.
Speaker 3 (03:52):
Tracy's good at introductions. If it had been me, I'd
just been like Ray Dalio, you all know his name,
let's break it in. But Tracy does it properly, especially
for a guest of your stature.
Speaker 4 (04:03):
You do pretty good too, Joe, thank you for having me.
Speaker 2 (04:06):
So I want to start with the really important stuff.
So first, let me just thank you on behalf of
millions of Americans for your contribution to the chicken nugget.
What did you do exactly when it comes to chicken nuggets?
Speaker 4 (04:19):
What was your role? Well, when I was pretty young,
I started trading commodities because they had the lowest margin requirements.
So I figured if I was going to be right
and I wouldn't do it, if I wasn't going to
be right, that I would be able to get the
(04:39):
most amount of leverage out of these and so I
started trading commodities before most people started to trade commodities,
and then that led me in nineteen seventy three when
I graduated from business school to become a commodity investor
(05:00):
sort of. And what I did was I was in
charge of institutional futures at one of these brokerage houses,
and that brought me in contact with the mechanics of
how hedging and how chickens and grain and everything worked.
So fast forward, I got to meet the biggest chicken
(05:22):
producers in the world, and McDonald's hired me as a
consultant of sorts to advise them on how they were
going to safely price the chicken McNugget. You see. Their
worry was that if they this was very volatile times
(05:43):
then and their worry was if they bought the chicken
and they put it on the menu and the prices changed,
like went up a lot, they'd have to change the
menu price. So they needed to know that they could
have stable prices. And we walked and I knew that
the mechanics of chicken. He had you produce it. There
(06:07):
were little chicks and they didn't cost much. And what
cost most of the money to make a chicken was
the corn and soyed meal that they produce as feed
to feed them to get them to be big chickens
and so on. And so I went to one of
my chicken producing clients and McDonald's, and I showed how
(06:32):
this chicken producing client could hedge the price and give
them a stable price, and because of that, they were
able to put chicken McNuggets on the menu.
Speaker 3 (06:44):
I love this story for multiple I love the idea
of creating a sort of synthetic financial chicken McNugget price
through the inputs. You know, I want to say, you know,
for a long time, I probably bought into this view
that the real creators in an economy are the farmers
and the growers and the entrepreneurs who you know, come
(07:05):
up with a distribution mechanism, and it always sort of
the people in finance are thinking, you know, is seen
as like, oh, they're just sort of speculating or betting
on that. And I've changed my mind over the years.
And you know, there are many good ideas in the
world that people have on paper and labs and so
forth that never exist because the financing mechanisms to bring
(07:27):
them to place don't exist. And so I would say
that if you like, especially in nineteen seventy five, when
I imagine we didn't in the mid nineteen seventies, when
we didn't have the same level of easy running computing
power in as liquid markets, et cetera. That someone who
figures out how to create a synthetic McNugget price is
as much the inventor of the McNugget as the person
(07:49):
who figured out how to, you know, ball and fry
the chicken.
Speaker 4 (07:52):
Do you think I can claim being the inventor the
chicken nugget?
Speaker 3 (07:55):
I don't know.
Speaker 4 (07:56):
I think that I think that'd be overreach.
Speaker 3 (07:58):
Okay, well, anyway, I love that.
Speaker 2 (08:01):
I love that story, all right, So I want to
get to debt the actual important things. So the thrust
of the new book, it kind of reminds me of
one of my all time financial favorites, which is a
history of interest rates by Homer and Sydney. And you're
kind of taking a similar approach, although maybe you're not
going all the way back to ancient Babylon or something
(08:22):
like that. But why did you decide to focus on
debt cycles? What's the allure for you? And what do
you learn from history?
Speaker 4 (08:30):
In nineteen seventy one, before after I graduated college and
before I went to business school, I clerked on the
floor of the New York Stock Exchange on and I
filed the markets. I filed the market since I was
a kid. I first got involved in markets when I
was twelve. I used to caddy and then it was
(08:52):
the time of the stock market, and the stock market
was very hot, and I took my cadding money and
I did that. But anyway, that led me to be
on the floor of the New York Stock Exchange and
follow markets. And on August fifteenth, nineteen seventy one, Richard
Nixon Sunday Night, got on the television and told people
(09:18):
that the monetary system was going to change, that the
money that they thought they could get gold was thought
of as money then, and paper money was like checks
in a checkbook, didn't have any intrinsic value, no value
that they would not get because there was a fixed
(09:39):
exchange ring. And he gave some sort of BS story
about why that was, which it was really because they
didn't have enough gold to back up their money claims.
And I walked on the floor of the New York
Stock Exchange. I thought, this is a big crisis. This
is going to be terrible, and I thought the stock
(09:59):
market I was going to go down a lot and
I went on the floor and it went up the
most in years. And I didn't understand that. I didn't
understand why, And so I started to do research, and
I found that on March fifteenth, nineteen thirty three, President
(10:21):
Roosevelt got on the radio and made the exact same
announcement for the exact same reason. And I studied, then,
why is it that they went up a lot? Okay,
you devalue money. When you devalue money and you make
money very easy, things go up. And so I learned
(10:45):
not just the nature of that mechanic, but I learned
that things that surprised me in my life often were
things that never happened in my lifetime, but they happened
in times in history. So I studied the Great Depression.
I figured, okay, I should study all big things that happened,
(11:08):
and I studied that Great Depression. And as a result
of doing that, in two thousand and eight, I was
able to anticipate the global financial crisis ahead of it.
And the reason is is because when you have a
debt crisis and interest rates go down and hit zero,
(11:30):
so they can't go down anymore. Cutting interest rates anymore
is no longer going to work. And what I learned
from studying this event in nineteen thirty three is that
when that happens, the government prints money and buys the bonds.
(11:52):
So what happened in two thousand and eight was exactly that,
and I wouldn't have understood it if I didn't study
what happened back then. So that changed my whole approach
to decision making, which is also why I did this
study recently, and that came out as the book that
you're referred to, you know, Principles for dealing with the
(12:15):
Changing World Order. I needed to study things that hadn't
happened in my lifetime. So we'll get into it. Yeah,
there are things that are happening to us in our
lifetimes that haven't happened before that you have to go
back to the thirties or other periods of time to understand.
And related to that is this money debt thing.
Speaker 3 (12:53):
Let's talk about the present tense And obviously Tracy and
her fantastic intro talked about the size of the deficit
life year, and you know, you see so much about
the debt. You know, there's two things in the story.
You're told there's sort of two things that struck me
right now, Which is one is, obviously we don't have
a form of currency that's quote backed by anything. There's
nothing to quote run out of that we couldn't mate it.
(13:15):
It's the sort of fiat currency in the truest sense
of the word. There's also the other thing is you
know you mentioned stock surged because of these moves represented
this big fiscal loosening. We are in an era in
which inflation has been high for several years. Inflation is
still above target, and many people would say this still
most persistent issue right now is this issue of too
(13:39):
much money and that there's still things are too expensive,
et cetera, and so there's still this impulse to titan
So when you think about these lessons that you're talking about,
then when you look at our fiscal position in twenty
twenty five, what do you think about what? When you
look at our fiscal position, what do you see?
Speaker 4 (13:57):
Again? I think you can tell from the way that
I talk. I think about the mechanics and how does
it work. And in answer to your prior question, the
reason I'm writing this book is because I think that
we're at an inflection point and I think that people
do not economists and people and everybody. Policy makers don't
(14:24):
adequately understand the big debt cycle. They understand the shorter
term debt cycles. You know things economies, we inflation goes down,
they make credit available, things go up, stocks and everything
goes up until you get too much and you get inflation.
Then they tighten credit and so on. But the big
(14:45):
debt cycle isn't understood. And yet we're there, We're at
the brink of one of these. And so what I
think about this is that there are really three factors
that drive the big debt cycle, and I want to
(15:06):
convey those. I'm a part of my life that I'm
trying to convey those. And so, okay, most people think
interest rates go up because of inflation tightness or ease
of monetary policy, but they don't realize that there are
limits to dick growth. And here's how it happens. One
man's debts or another man's financial assets. So when you're
(15:27):
holding a lot of bonds, that's a large percentage of
the portfolio, that's also a large debt. And think of
the credit system like a circulatory system that brings nutrients
to all of the parts of the body. So you
(15:48):
give mind power. And if that buying power is used
to create productivity, then what it does is it produces
incomes that are large enough to pay the debts back
and give you productivity and everybody's app But if the
(16:08):
debts are too large and don't produce the productivity, you
don't have the income that's necessary to service those debts.
And so in this circulatory system, if it's healthy, you're
seeing incomes rise with the debts, and you're seeing the
(16:29):
system work well. When debts rise relative to incomes that
are needed to service the debt, it's like plaque in
the system, building up in the circulatory system because it
means that first of all, you have a debt service
problem that you have to pay the debt service, and
(16:52):
that's like plaque in that it leaves less room for spending. So,
for example, the US government has an interest bill that's
about a trillion dollars a year, and if they didn't
have a trillion that didn't have that interest bill, they'd
have a trillion dollars more spending, and that process gets
(17:15):
worse and worse over time. In addition, one has to
roll over the debt that was last accumulating, so we
have to roll over this year about nine trillion, a
little over nine trillion dollars of debt. That means the
(17:35):
new you know, they get it runs out, then you
have to sell it again. And when they have a
lot of that debt, that's a problem. And when you're
doing putting a lot more debt on top of that
pile of debt, so it's not just the existing debt
that's a problem, but you have to add more debt sales,
(17:56):
which equals essentially the budget deficit, which now is going
to be about seven and a half percent of GDP.
You've got to sell those. You have to sell those
to people or institutions or central banks or sovereign funds
that hold these bonds while they're already holding too many
(18:17):
bonds and now they have to roll them over, and
you have to sell these new bonds that are coming on,
and that can be a problem, and it can be
worse than that, because if they don't have if they say, hey,
there are too many of these bonds and i've got
enough and I don't want to buy it, or worse,
(18:41):
there could be some reasons that they don't want to
buy it, like for example, sanctions. Okay, we're living in
a world similar to the nineteen thirties, and if I
was the Chinese, I would worry that what would happen
to me might happen what happened to the Japanese in
the nineteen thirties, which is that we froze their bonds,
(19:05):
a meaning they didn't get their money. And so nowadays,
with sanctions and too many bonds and so on, when
I calculate who are the buyers and how much do
we have to sell, I find a big imbalance, and
I know how that works. You know what happens is
central banks buy these bonds, They print money and buy
(19:28):
the bonds, and then they lose money on the bonds,
and you get a negative network at the central bank,
and you get this spiral when you reach the part
of the cycle that you have to borrow money to
pay debt service, and then the holders of those bonds say, okay,
(19:50):
it's a risky situation. In the private credit market, we
call that the debt spiral, the debt debt spiral, because
when you have to to roll over the debts but
it's risky, the credit spreads go up. And when the
credit spreads go up, then it adds to the debt
service and it becomes a spiral. That's a problem. So
(20:12):
the way I calculate it is that we're quite near
that point.
Speaker 2 (20:18):
Can I just press you on the inflection idea, because
I think this is one of the things that people
really struggle with, because it is true the US has
a lot of debt, and it's true that it's issuing
more debt in order to pay down interest. But at
the same time, nothing really bad has happened quite yet,
(20:38):
and I think there's a sense of call it maybe
debt doom fatigue. We've had warnings over the deficit for decades. Now,
how do you actually go about figuring out when the
cycle will turn or what specific things do you look
for as the proximate catalyst for that inflection point?
Speaker 4 (21:01):
Well, that's why I wrote my book How Countries Will
Go Broke that by the way, when I say it's
a book, it'll come out as a book, but I
made it free online for anybody who wants to read it,
and what I wanted to show was the actual mechanics
of how that happens. So I hope your listeners will
(21:23):
get it and you know it's free, it's there for
you to start to consider, and what it is is
look at that mechanics and the signs that you can
see that happening. In other words, first start to do
the supplied demand analysis. Simple when that dynamic I describe
(21:44):
starts happening, you can see it because the amount that
is sold is not bought by the private sector anymore
of those other buyers, and then the central bank has
to come in and then print money and make up
that difference, and then that the value is money. So
(22:04):
we saw let's call it a palpitation. I give this example.
It's like a heart attack. We saw that when in
twenty twenty, in twenty twenty one, when the government needed
in twenty twenty to send out a lot of money,
it actually sent out about twice the amount of money
(22:27):
that people in their incomes lost or businesses lost. They
sent out twice as much amount of money then and
then in twenty twenty one they did it again without
the need. But there was a move from a right
of center policy to a left of center policy in
(22:49):
which universal basic income and the desire to do that
put out that money. And so where did the government
get the money from. They got it from the central
bank that produced the money and sent it out, and
so everybody's getting all this money and they're surprised that
(23:11):
prices went up so okay, So you have that wave
of inflation that was like a warning heart attack. So
what I'm trying to do in that book is show
the dynamics and the mechanics that show how you can
calculate what the supplied demand is and what will happen
(23:35):
at what's likely to happen, and what has happened through time.
So I go back through time and I show these many,
many cases of it so that you can distinguish it,
because I'm with you the alternative, which has been a problem.
You know, it's like somebody who's built up their cholesterol
(23:57):
and lived this way and they say, I haven't had
a heart attack, and they get that as positive reinforcement, and.
Speaker 2 (24:04):
I guess the nuggets, and there we are.
Speaker 4 (24:11):
So the question I have for everybody, for those in
the administration and for others, is that dynamic which you
can see we're played out in there. You could see
the moment by moment, literally month by month changes that
are the symptoms and the indicators that you're having a
(24:31):
heart attack, an economic heart attack at that crisis. It's
shown in that book. And the only thing I want
to do is, first of all, say is that logical?
Do you see it? And so in our conversation, I
can't show you the charts and numbers and so on,
but I can tell you. And so we should be
asking ourselves is that logical? Has it happened before? And
(24:55):
then what do we do about it? Rather than say
we don't have to worry about it?
Speaker 3 (25:00):
What does it look like? Specifically? Okay, you walk through
the math and you talk about you know, at some
point you could talk about supply and demand and is
the demand actually there? And there have been warnings, as
both you and Tracy acknowledged for years, and you know
you have these little tremors or maybe heart attacks and
so forth. Let's say it happens, and I don't know
(25:21):
what it is, but what is the equivalent in twenty
twenty five or twenty twenty six or twenty twenty seven
of Nixon suddenly taking us off the gold standard?
Speaker 4 (25:31):
Is it?
Speaker 3 (25:32):
And you sort of hinted at it, do you see
plausibly mixing up with geopolitics from the trade wars? An
equivalent of saying we don't acknowledge China's debt, that that's
not real debt. We're freezing it, we're paying it off.
They have no claims to it. Is that something that
you could see happen? What does that day look like?
In your view?
Speaker 4 (25:51):
That day looks like what happened on August fifteenth, nineteen
seventy one, but just much bigger. You'll see you'll see
the supply demand problem. You will see a spike in
interest rates, a tightening very much by the way these
(26:11):
always happen, that happened in twenty twenty. There'll be a
spike in interest rates. It will show up as interest
rates rising and the value of money going down, particularly
in relation to gold or other currencies. Perhaps, although this
is something that will affect all currencies because they'll all
(26:33):
be in the same they'll all depreciate it get together,
and you'll see the rates rising, even though the Federal
reserve is easy. Then you will see the Federal Reserve
come in and buy and do another QE, and then
you're going to see the kind of reaction that you
(26:56):
saw back in twenty twenty and twenty one on where
not only the inflation component but gold and other asset
prices in the scent going up, it'll look like that.
Speaker 3 (27:09):
But just to be clear, I want to press on
this point. When that what is the equivalent announcement of
a Nixon going off the gold standard in nineteen in
August nineteen seventy one, what is that thing today? Is it?
Do you?
Speaker 4 (27:25):
They won't. They won't because because we have a Fiat monetary.
Speaker 3 (27:30):
Yeah, so we can't do it can't be the same.
Speaker 4 (27:32):
It doesn't require an announcement, But do.
Speaker 3 (27:36):
You expect there to be a policy announcement of we
are no longer paying the debt, say owned by China.
Speaker 4 (27:44):
I'll tell you what you will certainly see, and then
I'll tell you what you will possibly see. What you
will certainly see is the Federal Reserve coming in and
buying a lot like it did. And it doesn't have
to say an announcement, but it'll come in like that
like they did in two thousand and eight, or like
they did in twenty twenty, except in a bigger way.
(28:06):
But what you might have in preparation for that, like
in nineteen seventy one, is certain actions taken to deal
with that issue, such as extending the maturity of the debt.
These are possibilities.
Speaker 3 (28:22):
Can you say you're not like a default on some
people's debt.
Speaker 4 (28:25):
Yeah, but I think the government would do it such
as that country is going to be sanctioned, and therefore
to sanction them, we are not going to pay the debt.
That would be a very classic and certainly fireworks should
go off in your mind about that signal. I'm not
saying it's going to happen, but that is one of
(28:47):
those things. And you could see then the government saying
that they're going to restructure the debt. They won't say
it's a default. They will say under this policy, we're
going to be better off if we don't vault the fault.
(29:09):
We won't change what you're going to get paid, but
we're going to spread it out over more years. That'll
be a restructuring of the debt combined with some monetization
of the debt, in other words, a central bank policy
where they're buying some of that debt. That'll look like that.
(29:33):
If it gets bad, then you could have more extreme
things happened.
Speaker 2 (29:54):
Since we're on the topic of major events in the
financial system, wonder if you've been following any of the
papers or thought pieces coming out of parts of the
Trump administration, and specifically this hypothetical situation of a Mara
a Lago accord where the US basically gets a weaker
(30:15):
dollar and also gets to maintain its special status in
the global financial system. What do you think about the
possibility of the US restructuring the entire system so as
to further benefit itself.
Speaker 4 (30:30):
I think that that's a real possibility, and it's done
semi secretively. But I want to be clear what that's like.
I don't think it's a depreciation of the dollar in
relationship to all other currencies. I think all other currencies
(30:51):
will depreciate with the dollar. In other words, it's up
to each central bank, and pretty much in terms of
other currencies, it's an ugly content. You know, there's the
Euro and the European situation, which is terrible. There's the
Japanese yen. They have a huge amount of debt which
they're monetizing and so on. There's China's REMMB and that's
(31:15):
not going to be a safe soorehold of wealth. And
none of those currencies are going to sort of be
what you'd call strong. So I think it would be
very much like the nineteen seventies, which is very much
like the nineteen thirties in which they all go down
in relation to gold or other hard assets like that.
(31:38):
And you know, what is the alternative money? Will be
the question, what's the alternative money that is stable and
supply But bitcoin might be a bit part of that,
could be a big part of that. But what is
the alternative money? Because debt is money and money is debt.
When I say debt is money, debt is money. Cop
(32:01):
you're holding this and you're people are going to give
you money, and money is stored in a debt instrument.
When you're holding your money, you're putting it in a
debt instrument, So they're one and the same. When you
have too much debt, it goes down. So I would
think it's more like gold bitcoin. What is the alternative money?
(32:23):
Money has two purposes, right, a medium of exchange and
a storehold of wealth. As far as a medium of exchange,
it can keep working as a medium of exchange. In
Germany's Ymar Republic or Argentina recently, you can you know,
you can carry back barrels of wheelbarrows of money and
(32:44):
it's you can still exchange it. They had so much
that they couldn't count it, so they waited. This is
literally the case. So the money will can be used
for medium exchange, but as a storehold of wealth, it's
not going to be used, and people will look for
other storeholds of wealth that are movable and tradeable. So
(33:06):
like in the thirties and then the forties, what did
countries do with each other. They're not going to trust
that the other country is not going to print the
money or do that, So they exchanged gold. Because gold
has the attributes, it's limited in supply, it's not easy
to manufacture, and throughout history it's been held by central banks.
(33:30):
It's used today. Gold is the third largest reserve currency.
It's the dollar, then the euro, then gold, and then
the Japanese in and so that's why I'm saying I
think that in that particular dynamic, you say, well, what
is it that's the storehold of wealth, and you see
and I emphasize gold, but bitcoin two has elements of that.
(33:54):
It's not real estate because real estate is down. You
have a problem with real estate. Real estate is nailed down.
You can't move it around, you can't. It doesn't work
that way. It's very interest rate sensitive, so when interest
rates go up, it hurts it. It's also very easily
taxed because it's not moved, you can easily tax it,
(34:17):
so it's not like it could be exchanged. So there's
a very limited number of alternative moneies.
Speaker 3 (34:24):
So you know when people say something like a mar
Lago chord and they harken back to the Plaza coord
that was clearly about we want a weaker dollar because
we want it weaker against other FIAT currencies for the
virtue of strengthening American manufacturing. What you're saying then is
that it couldn't work that way this time. We can't
think it's such a tight analog because it's not going
(34:46):
to weaken just against other currencies, it'll weaken against heart assets.
Just real quickly, if we were if we had you
on the if we had had you on the podcast
in twenty fifteen, we were talking about something else. Are
you more exposed in some way more bullish on gold
today in twenty twenty five due to this, then you
were say, if we had been talking to you ten
years ago.
Speaker 4 (35:07):
Oh yes, I think the gold and I'm not trying
to harp on gold, and I don't want to be
run out and go buy it.
Speaker 3 (35:16):
They will, but you can going okay, so.
Speaker 4 (35:18):
Let me let me restrain them. Okay, I want to
restrain them. I want to say, what you don't know
about the future is far greater than anything that anyone
knows about the future. So we always have to be humble. Well,
what you need is a proper diversification to create a portfolio.
(35:41):
And what that means is if you look at gold,
gold does well when those other assets that you're typically
holding in your portfolio don't do well in such a crisis. Okay,
So if you're holding a lot, let's say, a lot
of odds or those types of things, the optimal mount
in a typical portfolio is in the vicinity of a
(36:06):
little bit bet less than fifteen percent, like if you
didn't know you would hold but let's say it's ten percent, Okay.
A prudent amount of that kind of little bit of
gold serves as a protection and diversifies the portfolio. And
what I think the most important thing is that you
(36:27):
don't have much of an exposure. I'm not on this
show to tut gold, and I want to restrain people,
but it's also keep in mind and investing what happens
is the biggest problem with most investors is that they
believe that whatever has been the best investment over the
(36:49):
recent past is the best investment, not that it's become
expensive and become too expensive and go down. And so
there's a tendency of portfolios to investors to hunt to
invest when things become terrific. So, by way of example,
(37:13):
let's say AI companies and you know companies like that. Well,
the thing I want to convey to investors is that
the idea that what's been going on is a good
what's gone up a lot and really done well is
a good investment, rather than it's become expensive is something
(37:36):
they have to watch out for, and that the best
company is no more the best investment. Right then, the
best horse in a horse race is the best thing
to bet on because there are odds and hurdles that
(37:59):
are bay into the price. So if you're going to
bet on a horse and a horse race, you have
an equal likelihood of betting on the worst horse to
do the best to win on because the odds are
shifted the discounting. You know that might be the fifty
to one shot, and so the markets are like that.
(38:21):
It's like a football game, you have to beat the spread.
So that dynamic means that you should balance most. The
thing I will really convey to your listeners is that
knowing how to balance your portfolio well is a very
important thing. This is the most important thing because what
(38:45):
you know is you know you can't be certain about
and you can reduce your risks without reducing your expected
returns if you do that well. And that gold is
a part of a portfolio. So if I'm giving some
thoughts about a portfolio, I would say diversify well. Gold
(39:08):
is an effective diversifier. And at a time when there's
an X, you know, let's say too much debt. You
can also rephrase that and say too many bonds and
they're going to be a lot more coming. Might be considerations,
but I don't want to start giving portfolio advice. What
(39:30):
I want to do is let people know, and let
really the policy makers know that there's a solution here.
I mean, there's a right thing to do. We're talking
about all the difficult things, and I want to emphasize
that this can be doable. Okay, you can lower that
deficit to go to three percent of GDP frump tax
(39:54):
cuts come in, the projected deficit will be about seven
and a half percent of GDP, and you have to
cut that to about three percent of GDP because that'll
mean that that's won't rise relative to incomes and it
will greatly improve the supply demand. So what I want
to do is contribute by showing what can be done.
(40:20):
And in fact, that was done from nineteen ninety two
to nineteen ninety eight. There was a five percent in
GDP cut in the budget deficit. So that's what I'm
talking about. Going from a four percent you know, let's
say seven seven and a half down to three is
a four or five percent cut of this percentage of
(40:43):
GDP that happened from nineteen ninety two to nineteen ninety
eight and can be done, And so I want to
talk about those things that can make a big difference.
Speaker 2 (40:56):
So on this note, how do you actually go about
building consensus for all these moves, because it does feel
like part of the problem here is there is a
lot of disagreement about what debt should be used for.
You know, should it fund more defense, should it fund
tax cuts, Should it be used for more social programs
or infrastructure or something like that, and then there's an
(41:19):
added layer of disagreement about how debt dynamics actually work
and when they matter. And I appreciate that part of
your book is this effort to show how debt actually operates,
but there's still so much disagreement. How do you actually
go about, you know, getting people to agree on what
(41:41):
debt is, how it works, and then do something about it.
Speaker 4 (41:44):
How I'm trying to do that is, first of all,
show people the three percent solution and make them aware,
make those in Congress and President awar that they need
to get the down to that three percent, and that
(42:06):
arguing about how they do it leading to them not
doing it. Is very much like taking somebody who has
a serious heart problem and so on, and you could say, Okay,
you can exercise, you can eat this different way, you
(42:30):
can do this, and so on, and this is the way,
and you can do it. And in fact, if you
do it, if you get the deficit down, you will
get also lower interest rates, and because your interest expenses
are so high, those lower interest rates will also contribute
(42:53):
to your better health. And in fact, those lower interest
rates will help to cause asset prices to go up
and the economy to be better, which will also give
you tax revenue. So that you can do this, but
you're arguing about which way to do it will probably
(43:17):
prevent you from doing it. So you should start off
and take the three percent pledge first happen in your mind?
What is the goal? Three percent of GDP the budget deficit? Okay,
we all agree? Can we all agree that we need
to do that? Okay? Or if we can't agree, look
(43:39):
at the numbers, look at the story. And I'm telling you,
but please, you know, agree that at least if you
can say I agree on the number, will take the
three percent of GDP pledge. And then what you have
is don't let the particular arguments. I don't care if
(43:59):
you do it portionately across things. If you took every
item that you can change that contributes to that increase
in taxes, cut spending. If you just did everything proportionately
and you use that as your backup if we can't
(44:19):
reach agreement, we will do it all proportionally across the everything. Great.
That's I mean, there are better ways to do it,
but at least you did it. But if you don't
do it, so you're going to be in trouble. So
that's the reality because it will be public conflict and
(44:40):
it probably won't happen. So that's that's a choice. And
if you don't do it, then take the responsibility. Say
to yourself, if you don't do it, and there's the
crisis that I'm saying is will come, and I can't
tell you exactly when it'll come. It's like the heart attack.
(45:01):
Can't you exactly? I get it, you're getting closer. My
guess would be three years, give or take a year,
something like that. Okay, if you don't do that, and
then you own it, Okay, that you have to take
responsibility for the consequences. And if you say, okay, I
got three percent solution, I'll find it, and yes, own
(45:24):
it because you will own it. I mean when the
economy and this heart attack of sorts comes along, then
you're going to find yourself that the voters are not
going to be very happy. So you own it.
Speaker 3 (45:38):
Treasury Secretary Scott Vessant is verbally on board with what
you call the three percent pledge. He also talked about
three percent GDP growth. I think a three percent increase
or maybe more oil. Extending the tax cuts permanently, is
that consistent at all with a three percent pledge, or
do the extending the tax cuts permanently increase the chance
(46:02):
of this economic heart attach.
Speaker 4 (46:04):
It depends on the whole dynamic of whatever is done.
And I mean this in the following way. You can
get tax revenue. That's what matters. It's not necessarily that
tax rates. Raising tax rates is going to get you
(46:24):
the same tax revenues because if the economy is healthy,
and then it depends, there's an all mechanical thing how
interest rates operate and so on, the whole mechanics, you
can bring in more tax revenue. A good model to
look at was nineteen ninety two to nineteen ninety eight,
(46:47):
in which there's a mix of things that happened. You
can see the ripe mix. The ripe mix is going
to include those things that will naturally, in a healthy
way lower interest rates and help the economy and so on.
It's not a perfect solution, but it's go to that
nineteen ninety two to ninety eight period as an example.
(47:10):
In my book gives I give many examples. The best
mix is to properly mix depressing moves with stimulative moves.
What I call a beautiful deleveraging. And what I mean
by that is that if you raise taxes or lower spending,
(47:33):
that's depressing on the economy. However, if you do that
with an easing of monetary policy, which is stimulative on
the economy, those two things can balance, and they either
of them lowers the debt to income ratio, but they
(47:54):
can balance each other, and that's a well engineered move.
Speaker 2 (47:59):
So I want to go go back to the question
that Joe was asking a little bit earlier, and perhaps
ask it in a slightly different way. But when it
comes to taking action on this specific risk, you said
earlier that you have made a lot of money by
being able to understand debt cycles specifically in two thousand
and eight, can you give us some examples of trades
(48:21):
that you have undertaken in your, you know, very long
financial career that have been successful and get really specific
into it, because I think this is one of the
things that people struggle with. We can talk about diversification
and managing your risk, but it's very hard to come
up with the specifics of the trade.
Speaker 4 (48:43):
Before twenty eleven, what I saw was it was a
leveraging up. So a big sign is debt is increasing
much faster than incomes and that's not sustainable and what
limits it? And back then I calculated that who was
(49:06):
buying the debt that was increasing in a fast trade,
and that was the number of entities, but most importantly
European banks that were leveraging up to buy the debt.
And as they leveraged up, I saw that they were
going their capital requirements and their capital limitations would mean
(49:31):
that they could not buy. Once they were leveraged up,
they could not continue to buy at that same pace,
and therefore their purchases were going to go down. Their
holdings would be the same, but their purchases were going
to go down. At the same time. As I saw
(49:52):
that budget deficits would be large and therefore bond sales
would be large, I saw the mismatch. So okay, it's
a mismatch. So now what is the mechanics of that
mismatch That means, you know, get out of credit risk,
(50:16):
get out of credit risk, equity risk, and so on.
And that's an.
Speaker 3 (50:22):
Example, Ray Dahalio, such a pleasure to uh have your time.
Maybe you're not the creator of the chicken nugget. Maybe
the father or the uncle of the chicken nugget, but
also Bridgewater and numerous books. Thank you so much for
coming on the outline.
Speaker 2 (50:39):
Thank you for having Thank you Ray. That was an
absolute pleasure.
Speaker 4 (50:43):
You guys know what you're doing. You It was a
pleasure for me.
Speaker 2 (50:47):
Producers. Keep that in, Yeah, keep that in, Joe. That
was that was so much fun. I'm glad we finally
(51:08):
got to interview Ray Dalio.
Speaker 3 (51:10):
I swear I could have we could have done an hour.
Speaker 2 (51:12):
On the Oh, we could have done like five hours.
Speaker 3 (51:14):
No, I mean we could have done anug Yeah. Usually
because I just think about that. You know, it's not
a time when everyone had like tons of access to
computing power, and so even the idea of how you
I mean, it's so silly, right. We just talked about
the US might have this economic heart attack in the
next three years by golden by bitcoin. But I still
(51:35):
am thinking about the chicken nugget and how it would
not have been trivial to come up with a synthetic
chicken nugget future in nineteen seventy five. And I do
think that we should remember that financial engineering is a
form of engineering to bring physical things into the real world.
Speaker 2 (51:51):
Absolutely, and also insurance is a big thing here as well.
And I would argue more.
Speaker 3 (51:57):
Thought for me on the chicken nugget real quick, no, keep.
Speaker 2 (51:59):
Going, And I would argue that insurers are becoming a
more important, I guess, a shaper of worldwide norms, right,
like they are the ones that are making decisions about
what is acceptable. But anyway, these are all big picture
thoughts on other things we should talk about det yes.
Speaker 3 (52:17):
And you know, look, I think, I mean, there's a
few quick thoughts that I have, you know, getting a
bunch of people to say, we believe that a healthy
level of deficit to GDP is three percent, that you
know loan doesn't sound hard, you know, but then it's like,
you know, but we're very reluctant to cut anything of substance,
(52:40):
and we're also want to make the tax cuts permanently.
Seems kind of hard to square, but you know, we'll see.
And then just this idea, like it seems very clear
that Ray is you know, he didn't give us an
exact number, but the gold and also he mentioned bitcoin
multiple times.
Speaker 2 (52:59):
The other thing I'd say on his point about this
question of who will buy all the US debt, there
are plenty of people who have pointed out this problem before,
and I'm thinking back specifically to JP Morgan, and they
did a research note back in twenty twenty two basically
all about this, and they pointed out that in twenty
(53:19):
twenty two something really unusual happened, which is we had
all three major buyers for US debt, so commercial banks,
foreign governments and obviously the Federal Reserve itself all step
back from that market at the same time. So it
seems like an issue. On the other hand, you know,
(53:40):
the US can in theory force banks to buy more
US debt. They can change the regulations and do it
that way, that sort of financial repression way.
Speaker 3 (53:51):
So I don't know, re mentioned restructuring. So it's like
you have a five year note and then it's like, oh,
suddenly it's a ten year note. But we're not going
to call it a dew fall. But of course, you know,
these sort of these artifaults, we might not call them
as such. But if you expect to be paid back
over five years and it's ten years, if you're functionally defaulting,
you know, I will say, look, if you have a
huge tax cut, that's a bunch of rich people who
(54:13):
have more cash in the bank, and one place that
cash in the bank goes to is investments in One
form of investment is bond, so you increase the amount
of money that's in the household sector, et cetera. I
don't like I like these types of conversations. And you know,
he said one to three years if there's no meaningful
reduction in the deficit for this timing of the heart attack.
(54:36):
So maybe we'll have ray on again in twenty thirty
one and say what happened?
Speaker 2 (54:43):
We'll do it all right? Shall we leave it there?
Speaker 3 (54:45):
Let's leave it there.
Speaker 2 (54:46):
This has been another episode of the All Thoughts podcast.
I'm Tracy Alloway. You can follow me at Tracy Alloway.
Speaker 3 (54:52):
And I'm Joe Wisenthal. You can follow me at the Stalwart.
Follow our guest Ray Dalio. He's at Ray Dalio. And
of course check out his new book, which you can
find for free if you want to buy it, How
Countries Go Broke. Follow our producers Carmen Rodriguez at Carmen
armand dash Ol Bennett at Dashbot and Kilbrooks at Kalebrooks.
From our Odd Lots content, go to bloomberg dot com
(55:12):
slash odd Lot, where we have a daily newsletter that
you can sign up to, and check out our discord
where you could chat about all of these topics, including macro,
including gold, including bitcoin, discord, dot gg, slash, od loots.
Speaker 2 (55:25):
And if you enjoy all lots. If you like it
when we get really philosophical on debt, then please leave
us a positive review on your favorite podcast platform. And remember,
if you are a Bloomberg subscriber, you can listen to
all of our episodes absolutely ad free. All you need
to do is find the Bloomberg channel on Apple Podcasts
and follow the instructions there. Thanks for listening.
Speaker 4 (56:06):
In eight
Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2 (00:18):
Hello and welcome to another episode of the Authoughts podcast.
I'm Tracy Allaway.
Speaker 3 (00:22):
And I'm Joe Wisenthal.
Speaker 4 (00:24):
Joe, have you.
Speaker 2 (00:24):
Ever seen those visuals of a trillion dollars where it's like,
here's one hundred, here's one hundred dollar bill, here's a
stack of ten thousand dollars, here's a million dollars, and
eventually you get to one trillion, and it's just all
these palettes of notes that are worth a billion each
and they're like covering the size of a football field
(00:45):
or something, and they're double stacked.
Speaker 3 (00:47):
I love that. I never really know what they mean.
It's like, oh, this is as big as the Statue
of Liberty or something like that, and it's like, okay,
like I mean that is objectively big.
Speaker 4 (00:57):
I get.
Speaker 3 (00:57):
Is that a good way to visualize mine in terms
of what it means? I don't know, but yes, money,
especially your small denomination bills, can really pile up before
you get to real value.
Speaker 2 (01:09):
Well, okay, speaking of big numbers, the US budget deficit
was about one point eight trillion in twenty twenty four,
so if we stick with the visual, almost almost two
football fields of double stacked palettes of one billion dollars each.
So okay, quite a lot. But I think this ill
we saws, I know, but we didn't see a trillion dollars.
(01:31):
We saw billions. And I think this kind of illustrates
one of the really difficult things about finance and debt,
which is all of us, as you mentioned earlier, kind
of struggle to grasp the scale of these numbers that
are involved here, and one point eight trillions seems so
abstract that we have to describe it using football field
(01:54):
analogies or whatever else. And if we can't really grasp
the scale of the debt because it's just this number
that no one really understands or even takes seriously, then
it feels like it's difficult to tackle to solve.
Speaker 4 (02:08):
Right.
Speaker 3 (02:08):
Well, I'll say two things on that. I mean, I
think a you have to question, like, at any given point,
what isn't a called economy solving for right? And so
people have anxiety about the size of the debt and
the deficit. And then it's like, but you know a time,
you know, there's also.
Speaker 2 (02:24):
A high and they also have anxiety about social services, yeah.
Speaker 3 (02:28):
And things like that, And then there is also the
question of you know, we think of a household or
any entity as like you have to have money to
pay your bills. Are there other dynamics besides numbers that
cause a financial crisis. So, for example, you could have
a country with very high debt to GDP and it's
(02:48):
fine because you know, it goes on for longer than
people expect. And you can have countries with low debts
and deficits, but because they have an internal political crisis
because people no longer have confidence in the government of
this to pay it back. You can have a crisis
even at low levels. And so even thinking about what
does it mean to solve a debt, talk about debt
(03:08):
at the national level is simultaneously a financial discussion and
one about political confidence.
Speaker 2 (03:14):
A social conversation. All right, Well, on that note, I
am very happy to say that I think we have
the perfect guest to talk about all of these things,
someone who has consistently had some very big thoughts about
these very big numbers. We're going to be speaking with
Ray Dallio, the legendary founder of Bridgewater, the author of
numerous books, including a new one titled How Countries Go Broke,
(03:38):
principles for navigating the big debt cycle, and most importantly,
a key player in the invention of the chicken nugget.
I am very excited. Ray, Welcome to the show.
Speaker 4 (03:49):
Wow, what an introduction. Thank you.
Speaker 3 (03:52):
Tracy's good at introductions. If it had been me, I'd
just been like Ray Dalio, you all know his name,
let's break it in. But Tracy does it properly, especially
for a guest of your stature.
Speaker 4 (04:03):
You do pretty good too, Joe, thank you for having me.
Speaker 2 (04:06):
So I want to start with the really important stuff.
So first, let me just thank you on behalf of
millions of Americans for your contribution to the chicken nugget.
What did you do exactly when it comes to chicken nuggets?
Speaker 4 (04:19):
What was your role? Well, when I was pretty young,
I started trading commodities because they had the lowest margin requirements.
So I figured if I was going to be right
and I wouldn't do it, if I wasn't going to
be right, that I would be able to get the
(04:39):
most amount of leverage out of these and so I
started trading commodities before most people started to trade commodities,
and then that led me in nineteen seventy three when
I graduated from business school to become a commodity investor
(05:00):
sort of. And what I did was I was in
charge of institutional futures at one of these brokerage houses,
and that brought me in contact with the mechanics of
how hedging and how chickens and grain and everything worked.
So fast forward, I got to meet the biggest chicken
(05:22):
producers in the world, and McDonald's hired me as a
consultant of sorts to advise them on how they were
going to safely price the chicken McNugget. You see. Their
worry was that if they this was very volatile times
(05:43):
then and their worry was if they bought the chicken
and they put it on the menu and the prices changed,
like went up a lot, they'd have to change the
menu price. So they needed to know that they could
have stable prices. And we walked and I knew that
the mechanics of chicken. He had you produce it. There
(06:07):
were little chicks and they didn't cost much. And what
cost most of the money to make a chicken was
the corn and soyed meal that they produce as feed
to feed them to get them to be big chickens
and so on. And so I went to one of
my chicken producing clients and McDonald's, and I showed how
(06:32):
this chicken producing client could hedge the price and give
them a stable price, and because of that, they were
able to put chicken McNuggets on the menu.
Speaker 3 (06:44):
I love this story for multiple I love the idea
of creating a sort of synthetic financial chicken McNugget price
through the inputs. You know, I want to say, you know,
for a long time, I probably bought into this view
that the real creators in an economy are the farmers
and the growers and the entrepreneurs who you know, come
(07:05):
up with a distribution mechanism, and it always sort of
the people in finance are thinking, you know, is seen
as like, oh, they're just sort of speculating or betting
on that. And I've changed my mind over the years.
And you know, there are many good ideas in the
world that people have on paper and labs and so
forth that never exist because the financing mechanisms to bring
(07:27):
them to place don't exist. And so I would say
that if you like, especially in nineteen seventy five, when
I imagine we didn't in the mid nineteen seventies, when
we didn't have the same level of easy running computing
power in as liquid markets, et cetera. That someone who
figures out how to create a synthetic McNugget price is
as much the inventor of the McNugget as the person
(07:49):
who figured out how to, you know, ball and fry
the chicken.
Speaker 4 (07:52):
Do you think I can claim being the inventor the
chicken nugget?
Speaker 3 (07:55):
I don't know.
Speaker 4 (07:56):
I think that I think that'd be overreach.
Speaker 3 (07:58):
Okay, well, anyway, I love that.
Speaker 2 (08:01):
I love that story, all right, So I want to
get to debt the actual important things. So the thrust
of the new book, it kind of reminds me of
one of my all time financial favorites, which is a
history of interest rates by Homer and Sydney. And you're
kind of taking a similar approach, although maybe you're not
going all the way back to ancient Babylon or something
(08:22):
like that. But why did you decide to focus on
debt cycles? What's the allure for you? And what do
you learn from history?
Speaker 4 (08:30):
In nineteen seventy one, before after I graduated college and
before I went to business school, I clerked on the
floor of the New York Stock Exchange on and I
filed the markets. I filed the market since I was
a kid. I first got involved in markets when I
was twelve. I used to caddy and then it was
(08:52):
the time of the stock market, and the stock market
was very hot, and I took my cadding money and
I did that. But anyway, that led me to be
on the floor of the New York Stock Exchange and
follow markets. And on August fifteenth, nineteen seventy one, Richard
Nixon Sunday Night, got on the television and told people
(09:18):
that the monetary system was going to change, that the
money that they thought they could get gold was thought
of as money then, and paper money was like checks
in a checkbook, didn't have any intrinsic value, no value
that they would not get because there was a fixed
(09:39):
exchange ring. And he gave some sort of BS story
about why that was, which it was really because they
didn't have enough gold to back up their money claims.
And I walked on the floor of the New York
Stock Exchange. I thought, this is a big crisis. This
is going to be terrible, and I thought the stock
(09:59):
market I was going to go down a lot and
I went on the floor and it went up the
most in years. And I didn't understand that. I didn't
understand why, And so I started to do research, and
I found that on March fifteenth, nineteen thirty three, President
(10:21):
Roosevelt got on the radio and made the exact same
announcement for the exact same reason. And I studied, then,
why is it that they went up a lot? Okay,
you devalue money. When you devalue money and you make
money very easy, things go up. And so I learned
(10:45):
not just the nature of that mechanic, but I learned
that things that surprised me in my life often were
things that never happened in my lifetime, but they happened
in times in history. So I studied the Great Depression.
I figured, okay, I should study all big things that happened,
(11:08):
and I studied that Great Depression. And as a result
of doing that, in two thousand and eight, I was
able to anticipate the global financial crisis ahead of it.
And the reason is is because when you have a
debt crisis and interest rates go down and hit zero,
(11:30):
so they can't go down anymore. Cutting interest rates anymore
is no longer going to work. And what I learned
from studying this event in nineteen thirty three is that
when that happens, the government prints money and buys the bonds.
(11:52):
So what happened in two thousand and eight was exactly that,
and I wouldn't have understood it if I didn't study
what happened back then. So that changed my whole approach
to decision making, which is also why I did this
study recently, and that came out as the book that
you're referred to, you know, Principles for dealing with the
(12:15):
Changing World Order. I needed to study things that hadn't
happened in my lifetime. So we'll get into it. Yeah,
there are things that are happening to us in our
lifetimes that haven't happened before that you have to go
back to the thirties or other periods of time to understand.
And related to that is this money debt thing.
Speaker 3 (12:53):
Let's talk about the present tense And obviously Tracy and
her fantastic intro talked about the size of the deficit
life year, and you know, you see so much about
the debt. You know, there's two things in the story.
You're told there's sort of two things that struck me
right now, Which is one is, obviously we don't have
a form of currency that's quote backed by anything. There's
nothing to quote run out of that we couldn't mate it.
(13:15):
It's the sort of fiat currency in the truest sense
of the word. There's also the other thing is you
know you mentioned stock surged because of these moves represented
this big fiscal loosening. We are in an era in
which inflation has been high for several years. Inflation is
still above target, and many people would say this still
most persistent issue right now is this issue of too
(13:39):
much money and that there's still things are too expensive,
et cetera, and so there's still this impulse to titan
So when you think about these lessons that you're talking about,
then when you look at our fiscal position in twenty
twenty five, what do you think about what? When you
look at our fiscal position, what do you see?
Speaker 4 (13:57):
Again? I think you can tell from the way that
I talk. I think about the mechanics and how does
it work. And in answer to your prior question, the
reason I'm writing this book is because I think that
we're at an inflection point and I think that people
do not economists and people and everybody. Policy makers don't
(14:24):
adequately understand the big debt cycle. They understand the shorter
term debt cycles. You know things economies, we inflation goes down,
they make credit available, things go up, stocks and everything
goes up until you get too much and you get inflation.
Then they tighten credit and so on. But the big
(14:45):
debt cycle isn't understood. And yet we're there, We're at
the brink of one of these. And so what I
think about this is that there are really three factors
that drive the big debt cycle, and I want to
(15:06):
convey those. I'm a part of my life that I'm
trying to convey those. And so, okay, most people think
interest rates go up because of inflation tightness or ease
of monetary policy, but they don't realize that there are
limits to dick growth. And here's how it happens. One
man's debts or another man's financial assets. So when you're
(15:27):
holding a lot of bonds, that's a large percentage of
the portfolio, that's also a large debt. And think of
the credit system like a circulatory system that brings nutrients
to all of the parts of the body. So you
(15:48):
give mind power. And if that buying power is used
to create productivity, then what it does is it produces
incomes that are large enough to pay the debts back
and give you productivity and everybody's app But if the
(16:08):
debts are too large and don't produce the productivity, you
don't have the income that's necessary to service those debts.
And so in this circulatory system, if it's healthy, you're
seeing incomes rise with the debts, and you're seeing the
(16:29):
system work well. When debts rise relative to incomes that
are needed to service the debt, it's like plaque in
the system, building up in the circulatory system because it
means that first of all, you have a debt service
problem that you have to pay the debt service, and
(16:52):
that's like plaque in that it leaves less room for spending. So,
for example, the US government has an interest bill that's
about a trillion dollars a year, and if they didn't
have a trillion that didn't have that interest bill, they'd
have a trillion dollars more spending, and that process gets
(17:15):
worse and worse over time. In addition, one has to
roll over the debt that was last accumulating, so we
have to roll over this year about nine trillion, a
little over nine trillion dollars of debt. That means the
(17:35):
new you know, they get it runs out, then you
have to sell it again. And when they have a
lot of that debt, that's a problem. And when you're
doing putting a lot more debt on top of that
pile of debt, so it's not just the existing debt
that's a problem, but you have to add more debt sales,
(17:56):
which equals essentially the budget deficit, which now is going
to be about seven and a half percent of GDP.
You've got to sell those. You have to sell those
to people or institutions or central banks or sovereign funds
that hold these bonds while they're already holding too many
(18:17):
bonds and now they have to roll them over, and
you have to sell these new bonds that are coming on,
and that can be a problem, and it can be
worse than that, because if they don't have if they say, hey,
there are too many of these bonds and i've got
enough and I don't want to buy it, or worse,
(18:41):
there could be some reasons that they don't want to
buy it, like for example, sanctions. Okay, we're living in
a world similar to the nineteen thirties, and if I
was the Chinese, I would worry that what would happen
to me might happen what happened to the Japanese in
the nineteen thirties, which is that we froze their bonds,
(19:05):
a meaning they didn't get their money. And so nowadays,
with sanctions and too many bonds and so on, when
I calculate who are the buyers and how much do
we have to sell, I find a big imbalance, and
I know how that works. You know what happens is
central banks buy these bonds, They print money and buy
(19:28):
the bonds, and then they lose money on the bonds,
and you get a negative network at the central bank,
and you get this spiral when you reach the part
of the cycle that you have to borrow money to
pay debt service, and then the holders of those bonds say, okay,
(19:50):
it's a risky situation. In the private credit market, we
call that the debt spiral, the debt debt spiral, because
when you have to to roll over the debts but
it's risky, the credit spreads go up. And when the
credit spreads go up, then it adds to the debt
service and it becomes a spiral. That's a problem. So
(20:12):
the way I calculate it is that we're quite near
that point.
Speaker 2 (20:18):
Can I just press you on the inflection idea, because
I think this is one of the things that people
really struggle with, because it is true the US has
a lot of debt, and it's true that it's issuing
more debt in order to pay down interest. But at
the same time, nothing really bad has happened quite yet,
(20:38):
and I think there's a sense of call it maybe
debt doom fatigue. We've had warnings over the deficit for decades. Now,
how do you actually go about figuring out when the
cycle will turn or what specific things do you look
for as the proximate catalyst for that inflection point?
Speaker 4 (21:01):
Well, that's why I wrote my book How Countries Will
Go Broke that by the way, when I say it's
a book, it'll come out as a book, but I
made it free online for anybody who wants to read it,
and what I wanted to show was the actual mechanics
of how that happens. So I hope your listeners will
(21:23):
get it and you know it's free, it's there for
you to start to consider, and what it is is
look at that mechanics and the signs that you can
see that happening. In other words, first start to do
the supplied demand analysis. Simple when that dynamic I describe
(21:44):
starts happening, you can see it because the amount that
is sold is not bought by the private sector anymore
of those other buyers, and then the central bank has
to come in and then print money and make up
that difference, and then that the value is money. So
(22:04):
we saw let's call it a palpitation. I give this example.
It's like a heart attack. We saw that when in
twenty twenty, in twenty twenty one, when the government needed
in twenty twenty to send out a lot of money,
it actually sent out about twice the amount of money
(22:27):
that people in their incomes lost or businesses lost. They
sent out twice as much amount of money then and
then in twenty twenty one they did it again without
the need. But there was a move from a right
of center policy to a left of center policy in
(22:49):
which universal basic income and the desire to do that
put out that money. And so where did the government
get the money from. They got it from the central
bank that produced the money and sent it out, and
so everybody's getting all this money and they're surprised that
(23:11):
prices went up so okay, So you have that wave
of inflation that was like a warning heart attack. So
what I'm trying to do in that book is show
the dynamics and the mechanics that show how you can
calculate what the supplied demand is and what will happen
(23:35):
at what's likely to happen, and what has happened through time.
So I go back through time and I show these many,
many cases of it so that you can distinguish it,
because I'm with you the alternative, which has been a problem.
You know, it's like somebody who's built up their cholesterol
(23:57):
and lived this way and they say, I haven't had
a heart attack, and they get that as positive reinforcement, and.
Speaker 2 (24:04):
I guess the nuggets, and there we are.
Speaker 4 (24:11):
So the question I have for everybody, for those in
the administration and for others, is that dynamic which you
can see we're played out in there. You could see
the moment by moment, literally month by month changes that
are the symptoms and the indicators that you're having a
(24:31):
heart attack, an economic heart attack at that crisis. It's
shown in that book. And the only thing I want
to do is, first of all, say is that logical?
Do you see it? And so in our conversation, I
can't show you the charts and numbers and so on,
but I can tell you. And so we should be
asking ourselves is that logical? Has it happened before? And
(24:55):
then what do we do about it? Rather than say
we don't have to worry about it?
Speaker 3 (25:00):
What does it look like? Specifically? Okay, you walk through
the math and you talk about you know, at some
point you could talk about supply and demand and is
the demand actually there? And there have been warnings, as
both you and Tracy acknowledged for years, and you know
you have these little tremors or maybe heart attacks and
so forth. Let's say it happens, and I don't know
(25:21):
what it is, but what is the equivalent in twenty
twenty five or twenty twenty six or twenty twenty seven
of Nixon suddenly taking us off the gold standard?
Speaker 4 (25:31):
Is it?
Speaker 3 (25:32):
And you sort of hinted at it, do you see
plausibly mixing up with geopolitics from the trade wars? An
equivalent of saying we don't acknowledge China's debt, that that's
not real debt. We're freezing it, we're paying it off.
They have no claims to it. Is that something that
you could see happen? What does that day look like?
In your view?
Speaker 4 (25:51):
That day looks like what happened on August fifteenth, nineteen
seventy one, but just much bigger. You'll see you'll see
the supply demand problem. You will see a spike in
interest rates, a tightening very much by the way these
(26:11):
always happen, that happened in twenty twenty. There'll be a
spike in interest rates. It will show up as interest
rates rising and the value of money going down, particularly
in relation to gold or other currencies. Perhaps, although this
is something that will affect all currencies because they'll all
(26:33):
be in the same they'll all depreciate it get together,
and you'll see the rates rising, even though the Federal
reserve is easy. Then you will see the Federal Reserve
come in and buy and do another QE, and then
you're going to see the kind of reaction that you
(26:56):
saw back in twenty twenty and twenty one on where
not only the inflation component but gold and other asset
prices in the scent going up, it'll look like that.
Speaker 3 (27:09):
But just to be clear, I want to press on
this point. When that what is the equivalent announcement of
a Nixon going off the gold standard in nineteen in
August nineteen seventy one, what is that thing today? Is it?
Do you?
Speaker 4 (27:25):
They won't. They won't because because we have a Fiat monetary.
Speaker 3 (27:30):
Yeah, so we can't do it can't be the same.
Speaker 4 (27:32):
It doesn't require an announcement, But do.
Speaker 3 (27:36):
You expect there to be a policy announcement of we
are no longer paying the debt, say owned by China.
Speaker 4 (27:44):
I'll tell you what you will certainly see, and then
I'll tell you what you will possibly see. What you
will certainly see is the Federal Reserve coming in and
buying a lot like it did. And it doesn't have
to say an announcement, but it'll come in like that
like they did in two thousand and eight, or like
they did in twenty twenty, except in a bigger way.
(28:06):
But what you might have in preparation for that, like
in nineteen seventy one, is certain actions taken to deal
with that issue, such as extending the maturity of the debt.
These are possibilities.
Speaker 3 (28:22):
Can you say you're not like a default on some
people's debt.
Speaker 4 (28:25):
Yeah, but I think the government would do it such
as that country is going to be sanctioned, and therefore
to sanction them, we are not going to pay the debt.
That would be a very classic and certainly fireworks should
go off in your mind about that signal. I'm not
saying it's going to happen, but that is one of
(28:47):
those things. And you could see then the government saying
that they're going to restructure the debt. They won't say
it's a default. They will say under this policy, we're
going to be better off if we don't vault the fault.
(29:09):
We won't change what you're going to get paid, but
we're going to spread it out over more years. That'll
be a restructuring of the debt combined with some monetization
of the debt, in other words, a central bank policy
where they're buying some of that debt. That'll look like that.
(29:33):
If it gets bad, then you could have more extreme
things happened.
Speaker 2 (29:54):
Since we're on the topic of major events in the
financial system, wonder if you've been following any of the
papers or thought pieces coming out of parts of the
Trump administration, and specifically this hypothetical situation of a Mara
a Lago accord where the US basically gets a weaker
(30:15):
dollar and also gets to maintain its special status in
the global financial system. What do you think about the
possibility of the US restructuring the entire system so as
to further benefit itself.
Speaker 4 (30:30):
I think that that's a real possibility, and it's done
semi secretively. But I want to be clear what that's like.
I don't think it's a depreciation of the dollar in
relationship to all other currencies. I think all other currencies
(30:51):
will depreciate with the dollar. In other words, it's up
to each central bank, and pretty much in terms of
other currencies, it's an ugly content. You know, there's the
Euro and the European situation, which is terrible. There's the
Japanese yen. They have a huge amount of debt which
they're monetizing and so on. There's China's REMMB and that's
(31:15):
not going to be a safe soorehold of wealth. And
none of those currencies are going to sort of be
what you'd call strong. So I think it would be
very much like the nineteen seventies, which is very much
like the nineteen thirties in which they all go down
in relation to gold or other hard assets like that.
(31:38):
And you know, what is the alternative money? Will be
the question, what's the alternative money that is stable and
supply But bitcoin might be a bit part of that,
could be a big part of that. But what is
the alternative money? Because debt is money and money is debt.
When I say debt is money, debt is money. Cop
(32:01):
you're holding this and you're people are going to give
you money, and money is stored in a debt instrument.
When you're holding your money, you're putting it in a
debt instrument, So they're one and the same. When you
have too much debt, it goes down. So I would
think it's more like gold bitcoin. What is the alternative money?
(32:23):
Money has two purposes, right, a medium of exchange and
a storehold of wealth. As far as a medium of exchange,
it can keep working as a medium of exchange. In
Germany's Ymar Republic or Argentina recently, you can you know,
you can carry back barrels of wheelbarrows of money and
(32:44):
it's you can still exchange it. They had so much
that they couldn't count it, so they waited. This is
literally the case. So the money will can be used
for medium exchange, but as a storehold of wealth, it's
not going to be used, and people will look for
other storeholds of wealth that are movable and tradeable. So
(33:06):
like in the thirties and then the forties, what did
countries do with each other. They're not going to trust
that the other country is not going to print the
money or do that, So they exchanged gold. Because gold
has the attributes, it's limited in supply, it's not easy
to manufacture, and throughout history it's been held by central banks.
(33:30):
It's used today. Gold is the third largest reserve currency.
It's the dollar, then the euro, then gold, and then
the Japanese in and so that's why I'm saying I
think that in that particular dynamic, you say, well, what
is it that's the storehold of wealth, and you see
and I emphasize gold, but bitcoin two has elements of that.
(33:54):
It's not real estate because real estate is down. You
have a problem with real estate. Real estate is nailed down.
You can't move it around, you can't. It doesn't work
that way. It's very interest rate sensitive, so when interest
rates go up, it hurts it. It's also very easily
taxed because it's not moved, you can easily tax it,
(34:17):
so it's not like it could be exchanged. So there's
a very limited number of alternative moneies.
Speaker 3 (34:24):
So you know when people say something like a mar
Lago chord and they harken back to the Plaza coord
that was clearly about we want a weaker dollar because
we want it weaker against other FIAT currencies for the
virtue of strengthening American manufacturing. What you're saying then is
that it couldn't work that way this time. We can't
think it's such a tight analog because it's not going
(34:46):
to weaken just against other currencies, it'll weaken against heart assets.
Just real quickly, if we were if we had you
on the if we had had you on the podcast
in twenty fifteen, we were talking about something else. Are
you more exposed in some way more bullish on gold
today in twenty twenty five due to this, then you
were say, if we had been talking to you ten
years ago.
Speaker 4 (35:07):
Oh yes, I think the gold and I'm not trying
to harp on gold, and I don't want to be
run out and go buy it.
Speaker 3 (35:16):
They will, but you can going okay, so.
Speaker 4 (35:18):
Let me let me restrain them. Okay, I want to
restrain them. I want to say, what you don't know
about the future is far greater than anything that anyone
knows about the future. So we always have to be humble. Well,
what you need is a proper diversification to create a portfolio.
(35:41):
And what that means is if you look at gold,
gold does well when those other assets that you're typically
holding in your portfolio don't do well in such a crisis. Okay,
So if you're holding a lot, let's say, a lot
of odds or those types of things, the optimal mount
in a typical portfolio is in the vicinity of a
(36:06):
little bit bet less than fifteen percent, like if you
didn't know you would hold but let's say it's ten percent, Okay.
A prudent amount of that kind of little bit of
gold serves as a protection and diversifies the portfolio. And
what I think the most important thing is that you
(36:27):
don't have much of an exposure. I'm not on this
show to tut gold, and I want to restrain people,
but it's also keep in mind and investing what happens
is the biggest problem with most investors is that they
believe that whatever has been the best investment over the
(36:49):
recent past is the best investment, not that it's become
expensive and become too expensive and go down. And so
there's a tendency of portfolios to investors to hunt to
invest when things become terrific. So, by way of example,
(37:13):
let's say AI companies and you know companies like that. Well,
the thing I want to convey to investors is that
the idea that what's been going on is a good
what's gone up a lot and really done well is
a good investment, rather than it's become expensive is something
(37:36):
they have to watch out for, and that the best
company is no more the best investment. Right then, the
best horse in a horse race is the best thing
to bet on because there are odds and hurdles that
(37:59):
are bay into the price. So if you're going to
bet on a horse and a horse race, you have
an equal likelihood of betting on the worst horse to
do the best to win on because the odds are
shifted the discounting. You know that might be the fifty
to one shot, and so the markets are like that.
(38:21):
It's like a football game, you have to beat the spread.
So that dynamic means that you should balance most. The
thing I will really convey to your listeners is that
knowing how to balance your portfolio well is a very
important thing. This is the most important thing because what
(38:45):
you know is you know you can't be certain about
and you can reduce your risks without reducing your expected
returns if you do that well. And that gold is
a part of a portfolio. So if I'm giving some
thoughts about a portfolio, I would say diversify well. Gold
(39:08):
is an effective diversifier. And at a time when there's
an X, you know, let's say too much debt. You
can also rephrase that and say too many bonds and
they're going to be a lot more coming. Might be considerations,
but I don't want to start giving portfolio advice. What
(39:30):
I want to do is let people know, and let
really the policy makers know that there's a solution here.
I mean, there's a right thing to do. We're talking
about all the difficult things, and I want to emphasize
that this can be doable. Okay, you can lower that
deficit to go to three percent of GDP frump tax
(39:54):
cuts come in, the projected deficit will be about seven
and a half percent of GDP, and you have to
cut that to about three percent of GDP because that'll
mean that that's won't rise relative to incomes and it
will greatly improve the supply demand. So what I want
to do is contribute by showing what can be done.
(40:20):
And in fact, that was done from nineteen ninety two
to nineteen ninety eight. There was a five percent in
GDP cut in the budget deficit. So that's what I'm
talking about. Going from a four percent you know, let's
say seven seven and a half down to three is
a four or five percent cut of this percentage of
(40:43):
GDP that happened from nineteen ninety two to nineteen ninety
eight and can be done, And so I want to
talk about those things that can make a big difference.
Speaker 2 (40:56):
So on this note, how do you actually go about
building consensus for all these moves, because it does feel
like part of the problem here is there is a
lot of disagreement about what debt should be used for.
You know, should it fund more defense, should it fund
tax cuts, Should it be used for more social programs
or infrastructure or something like that, and then there's an
(41:19):
added layer of disagreement about how debt dynamics actually work
and when they matter. And I appreciate that part of
your book is this effort to show how debt actually operates,
but there's still so much disagreement. How do you actually
go about, you know, getting people to agree on what
(41:41):
debt is, how it works, and then do something about it.
Speaker 4 (41:44):
How I'm trying to do that is, first of all,
show people the three percent solution and make them aware,
make those in Congress and President awar that they need
to get the down to that three percent, and that
(42:06):
arguing about how they do it leading to them not
doing it. Is very much like taking somebody who has
a serious heart problem and so on, and you could say, Okay,
you can exercise, you can eat this different way, you
(42:30):
can do this, and so on, and this is the way,
and you can do it. And in fact, if you
do it, if you get the deficit down, you will
get also lower interest rates, and because your interest expenses
are so high, those lower interest rates will also contribute
(42:53):
to your better health. And in fact, those lower interest
rates will help to cause asset prices to go up
and the economy to be better, which will also give
you tax revenue. So that you can do this, but
you're arguing about which way to do it will probably
(43:17):
prevent you from doing it. So you should start off
and take the three percent pledge first happen in your mind?
What is the goal? Three percent of GDP the budget deficit? Okay,
we all agree? Can we all agree that we need
to do that? Okay? Or if we can't agree, look
(43:39):
at the numbers, look at the story. And I'm telling you,
but please, you know, agree that at least if you
can say I agree on the number, will take the
three percent of GDP pledge. And then what you have
is don't let the particular arguments. I don't care if
(43:59):
you do it portionately across things. If you took every
item that you can change that contributes to that increase
in taxes, cut spending. If you just did everything proportionately
and you use that as your backup if we can't
(44:19):
reach agreement, we will do it all proportionally across the everything. Great.
That's I mean, there are better ways to do it,
but at least you did it. But if you don't
do it, so you're going to be in trouble. So
that's the reality because it will be public conflict and
(44:40):
it probably won't happen. So that's that's a choice. And
if you don't do it, then take the responsibility. Say
to yourself, if you don't do it, and there's the
crisis that I'm saying is will come, and I can't
tell you exactly when it'll come. It's like the heart attack.
(45:01):
Can't you exactly? I get it, you're getting closer. My
guess would be three years, give or take a year,
something like that. Okay, if you don't do that, and
then you own it, Okay, that you have to take
responsibility for the consequences. And if you say, okay, I
got three percent solution, I'll find it, and yes, own
(45:24):
it because you will own it. I mean when the
economy and this heart attack of sorts comes along, then
you're going to find yourself that the voters are not
going to be very happy. So you own it.
Speaker 3 (45:38):
Treasury Secretary Scott Vessant is verbally on board with what
you call the three percent pledge. He also talked about
three percent GDP growth. I think a three percent increase
or maybe more oil. Extending the tax cuts permanently, is
that consistent at all with a three percent pledge, or
do the extending the tax cuts permanently increase the chance
(46:02):
of this economic heart attach.
Speaker 4 (46:04):
It depends on the whole dynamic of whatever is done.
And I mean this in the following way. You can
get tax revenue. That's what matters. It's not necessarily that
tax rates. Raising tax rates is going to get you
(46:24):
the same tax revenues because if the economy is healthy,
and then it depends, there's an all mechanical thing how
interest rates operate and so on, the whole mechanics, you
can bring in more tax revenue. A good model to
look at was nineteen ninety two to nineteen ninety eight,
(46:47):
in which there's a mix of things that happened. You
can see the ripe mix. The ripe mix is going
to include those things that will naturally, in a healthy
way lower interest rates and help the economy and so on.
It's not a perfect solution, but it's go to that
nineteen ninety two to ninety eight period as an example.
(47:10):
In my book gives I give many examples. The best
mix is to properly mix depressing moves with stimulative moves.
What I call a beautiful deleveraging. And what I mean
by that is that if you raise taxes or lower spending,
(47:33):
that's depressing on the economy. However, if you do that
with an easing of monetary policy, which is stimulative on
the economy, those two things can balance, and they either
of them lowers the debt to income ratio, but they
(47:54):
can balance each other, and that's a well engineered move.
Speaker 2 (47:59):
So I want to go go back to the question
that Joe was asking a little bit earlier, and perhaps
ask it in a slightly different way. But when it
comes to taking action on this specific risk, you said
earlier that you have made a lot of money by
being able to understand debt cycles specifically in two thousand
and eight, can you give us some examples of trades
(48:21):
that you have undertaken in your, you know, very long
financial career that have been successful and get really specific
into it, because I think this is one of the
things that people struggle with. We can talk about diversification
and managing your risk, but it's very hard to come
up with the specifics of the trade.
Speaker 4 (48:43):
Before twenty eleven, what I saw was it was a
leveraging up. So a big sign is debt is increasing
much faster than incomes and that's not sustainable and what
limits it? And back then I calculated that who was
(49:06):
buying the debt that was increasing in a fast trade,
and that was the number of entities, but most importantly
European banks that were leveraging up to buy the debt.
And as they leveraged up, I saw that they were
going their capital requirements and their capital limitations would mean
(49:31):
that they could not buy. Once they were leveraged up,
they could not continue to buy at that same pace,
and therefore their purchases were going to go down. Their
holdings would be the same, but their purchases were going
to go down. At the same time. As I saw
(49:52):
that budget deficits would be large and therefore bond sales
would be large, I saw the mismatch. So okay, it's
a mismatch. So now what is the mechanics of that
mismatch That means, you know, get out of credit risk,
(50:16):
get out of credit risk, equity risk, and so on.
And that's an.
Speaker 3 (50:22):
Example, Ray Dahalio, such a pleasure to uh have your time.
Maybe you're not the creator of the chicken nugget. Maybe
the father or the uncle of the chicken nugget, but
also Bridgewater and numerous books. Thank you so much for
coming on the outline.
Speaker 2 (50:39):
Thank you for having Thank you Ray. That was an
absolute pleasure.
Speaker 4 (50:43):
You guys know what you're doing. You It was a
pleasure for me.
Speaker 2 (50:47):
Producers. Keep that in, Yeah, keep that in, Joe. That
was that was so much fun. I'm glad we finally
(51:08):
got to interview Ray Dalio.
Speaker 3 (51:10):
I swear I could have we could have done an hour.
Speaker 2 (51:12):
On the Oh, we could have done like five hours.
Speaker 3 (51:14):
No, I mean we could have done anug Yeah. Usually
because I just think about that. You know, it's not
a time when everyone had like tons of access to
computing power, and so even the idea of how you
I mean, it's so silly, right. We just talked about
the US might have this economic heart attack in the
next three years by golden by bitcoin. But I still
(51:35):
am thinking about the chicken nugget and how it would
not have been trivial to come up with a synthetic
chicken nugget future in nineteen seventy five. And I do
think that we should remember that financial engineering is a
form of engineering to bring physical things into the real world.
Speaker 2 (51:51):
Absolutely, and also insurance is a big thing here as well.
And I would argue more.
Speaker 3 (51:57):
Thought for me on the chicken nugget real quick, no, keep.
Speaker 2 (51:59):
Going, And I would argue that insurers are becoming a
more important, I guess, a shaper of worldwide norms, right,
like they are the ones that are making decisions about
what is acceptable. But anyway, these are all big picture
thoughts on other things we should talk about det yes.
Speaker 3 (52:17):
And you know, look, I think, I mean, there's a
few quick thoughts that I have, you know, getting a
bunch of people to say, we believe that a healthy
level of deficit to GDP is three percent, that you
know loan doesn't sound hard, you know, but then it's like,
you know, but we're very reluctant to cut anything of substance,
(52:40):
and we're also want to make the tax cuts permanently.
Seems kind of hard to square, but you know, we'll see.
And then just this idea, like it seems very clear
that Ray is you know, he didn't give us an
exact number, but the gold and also he mentioned bitcoin
multiple times.
Speaker 2 (52:59):
The other thing I'd say on his point about this
question of who will buy all the US debt, there
are plenty of people who have pointed out this problem before,
and I'm thinking back specifically to JP Morgan, and they
did a research note back in twenty twenty two basically
all about this, and they pointed out that in twenty
(53:19):
twenty two something really unusual happened, which is we had
all three major buyers for US debt, so commercial banks,
foreign governments and obviously the Federal Reserve itself all step
back from that market at the same time. So it
seems like an issue. On the other hand, you know,
(53:40):
the US can in theory force banks to buy more
US debt. They can change the regulations and do it
that way, that sort of financial repression way.
Speaker 3 (53:51):
So I don't know, re mentioned restructuring. So it's like
you have a five year note and then it's like, oh,
suddenly it's a ten year note. But we're not going
to call it a dew fall. But of course, you know,
these sort of these artifaults, we might not call them
as such. But if you expect to be paid back
over five years and it's ten years, if you're functionally defaulting,
you know, I will say, look, if you have a
huge tax cut, that's a bunch of rich people who
(54:13):
have more cash in the bank, and one place that
cash in the bank goes to is investments in One
form of investment is bond, so you increase the amount
of money that's in the household sector, et cetera. I
don't like I like these types of conversations. And you know,
he said one to three years if there's no meaningful
reduction in the deficit for this timing of the heart attack.
(54:36):
So maybe we'll have ray on again in twenty thirty
one and say what happened?
Speaker 2 (54:43):
We'll do it all right? Shall we leave it there?
Speaker 3 (54:45):
Let's leave it there.
Speaker 2 (54:46):
This has been another episode of the All Thoughts podcast.
I'm Tracy Alloway. You can follow me at Tracy Alloway.
Speaker 3 (54:52):
And I'm Joe Wisenthal. You can follow me at the Stalwart.
Follow our guest Ray Dalio. He's at Ray Dalio. And
of course check out his new book, which you can
find for free if you want to buy it, How
Countries Go Broke. Follow our producers Carmen Rodriguez at Carmen
armand dash Ol Bennett at Dashbot and Kilbrooks at Kalebrooks.
From our Odd Lots content, go to bloomberg dot com
(55:12):
slash odd Lot, where we have a daily newsletter that
you can sign up to, and check out our discord
where you could chat about all of these topics, including macro,
including gold, including bitcoin, discord, dot gg, slash, od loots.
Speaker 2 (55:25):
And if you enjoy all lots. If you like it
when we get really philosophical on debt, then please leave
us a positive review on your favorite podcast platform. And remember,
if you are a Bloomberg subscriber, you can listen to
all of our episodes absolutely ad free. All you need
to do is find the Bloomberg channel on Apple Podcasts
and follow the instructions there. Thanks for listening.
Speaker 4 (56:06):
In eight
Hosts And Creators
Joe Weisenthal
Tracy Alloway
Popular Podcasts
40s and Free Agents: NFL Draft Season
Daniel Jeremiah of Move the Sticks and Gregg Rosenthal of NFL Daily join forces to break down every team's needs this offseason.
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations. Follow now to get the latest episodes of Dateline NBC completely free, or subscribe to Dateline Premium for ad-free listening and exclusive bonus content: DatelinePremium.com
Las Culturistas with Matt Rogers and Bowen Yang
Ding dong! Join your culture consultants, Matt Rogers and Bowen Yang, on an unforgettable journey into the beating heart of CULTURE. Alongside sizzling special guests, they GET INTO the hottest pop-culture moments of the day and the formative cultural experiences that turned them into Culturistas. Produced by the Big Money Players Network and iHeartRadio.