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by raydalio0705
1903 days ago
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What is your take on the Ray Dalio view? The way I understand it:
1. Lending to the US government (buying treasuries) at low interest rates is not profitable, as you will be paid back in devalued currency. As is, real rates are negative. 2. Investors demand higher interest rates to make it worth their while. 3. US government has to roll over its debt or borrow more, but has to do it at higher interest rates that it cannot afford (what rate would that be?). Fed comes to the rescue by buying treasuries with new money, creating more demand and driving interest rates down. 4. That makes points 1 and 2 even more valid, so fewer 'real' investors turn up to buy treasuries, and those that hold treasuries try to sell them (you don't want to be getting fixed returns in currency that is losing value). That increases supply of treasuries even more. 5. Recognizing this dynamic, people rush to 'cash in' their dollars - buy anything tangible they can. US stocks sell off relative to 'hard' assets, as companies reporting in dollars are not be able to operate effectively. 6. This results in hyperinflation. The above unfolds relatively quickly with no advance warning (you don't want to alert others as you are trying to offload your dollars), turning low inflation into hyperinflation. |
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I think Dalio would go as far as saying "Cash is trash" but not as far as saying "the dollar will hyperinflate". He believes strong inflation is coming but that is very different than hyperinflation.
Hyper inflation would generally be defined as a quarter of 50% per month inflation. That means the dollar would have to lose 3/4 or more of it's value over a quarter to be said to have hyperinflated. Supply factors have to totally outstrip demand factors where there is essentially no bid to reach this kind of growth. But 90% of the world has debt denominated in dollars that creates a constant bid for dollars. This simply cannot unwind overnight without ending in a major global solvency event and if that happens every currency on the planet is going to be revalued instantaneously anyway.
Anyway that's a lot of words to say, I dont think Ray Dalio believes hyperinflation is coming. I think he thinks inflation is coming, maybe even a lot of it.
A second unrelated point is that every historical instance of hyperinflation I'm aware of involved a sovereign owing debts in some other sovereigns currency. No one has ever hyperinlfated when their debts were denominated in their own currency. This also is a situation which does not apply to the US.