Ray Dalio On How The Economic Machine Works

Tyler Durden's picture




 

"It's never different this time." Ray Dalio's recent discussion at the Council for Foreign Relations is probably the most in-depth access to his 'model' explanation of the way the world works we have encountered. From bubbles to deleveragings and how the inter-relationships of various cycles bring about consistent trends and corrections, the clip below and full readings are perhaps useful as we tread Wile E. Coyote-like off the edge of traditional monetary policy and encounter apparently different environments that in fact have occurred in perhaps alternate ways again and again over time. Great weekend viewing/reading on the three ways out of the current crisis that the Fed clearly believes we are in and the inevitability of his findings that "in all deleveragings, in the end they print money."

 

Full CFR discussion and Q&A...

 

Follow-Up Foreign Affairs Interview:

 

 

And the full PDF (here) of Dalio's model-process:

 

 

 


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Fri, 09/14/2012 - 20:14 | 2797602 icanhasbailout
icanhasbailout's picture

Um, CFR? They don't need the lesson, they know how this catastrophe goes because they're the cause of much of it.

Fri, 09/14/2012 - 20:26 | 2797629 Stackers
Stackers's picture

Imagine that. A CNBC snakeoil salesman shill hosting a CFR discussion. Who would have guessed

Fri, 09/14/2012 - 20:45 | 2797669 icanhasbailout
icanhasbailout's picture

I can describe how the machine works in three words: chew, chew, spit

Fri, 09/14/2012 - 21:39 | 2797802 Problem Is
Problem Is's picture

Fraud, Theft, War

There... fixed it forya...

Fri, 09/14/2012 - 23:22 | 2797958 Element
Element's picture

Ray + CFR = "beautiful deleveraging *"

 

 

* = as long as you aren't one of the 99%.

Sat, 09/15/2012 - 07:17 | 2798199 economics9698
economics9698's picture

CFR? Where is the rope?  

I can see why he's on the CFR panel; he's sugar coating the QE for the elites pay off.  People need to remember that the elites create money from nothing except administrative cost, say, I am exaggerating, 5%, and so if a bank can loan out money at 100% plus interest even a 50% payback is a 45% gain.

The problem is not that the banks do not what the 50% but the write off screws up the books and exposes the fraud to the public, and once the fraud is exposed why not write it off to 6%?

The best deleveraging for the people is bankruptcy, plain and simple.  This bankrupts the bastards that created 350% debt to GDP ratios; it should have NEVER exceeded 150%, and created a new world order based on sound money.

The bottom line is we need to get back to 100% fractional reserve banking, gold and silver.  All this is bull shit and a way for the elites to get out of this shit sandwich they created while maintaining their power.

Is Tyler the 5th column? 

 

10 year cycle?  BS.  Two year cycle.  Bankruptcy, eliminate central banks, silver, my choice, but gold works just as well.

 

So paying for welfare with inflation is fine for the CFR.

Real debt = Current Debt ($1.3 trillion) – (inflation rate 2% x total debt $16 trillion)

Or $1.3 trillion - $320 billion = $980 billion real deficit. 

So if the CFR can do some QE and bump the inflation rate up, hoping the peasants do not see their Coke 24 packs reduced to 20 packs, then 18 packs for $6.00, they can achieve this type of deleveraging and maintain poor.

In other words what the CFR is saying is Mitt Romney will change the math to;

Real debt  - $1.3 trillion – (10% inflation rate x $16 trillion)

Real deleveraging = $1.3 trillion - $1.6 trillion a mother fucking surplus due to the magic of the inflation tax.

Fucking real fucking original mother fucker.

I think we have seen this picture before.

I got it, lets kill the central banks, go back to private money based on silver or gold, and cancel all government debt and social justice programs.

I bet in 4 years the GDP will be growing 5% to 10%.  Just a guess.


 

Sat, 09/15/2012 - 17:00 | 2799224 AldousHuxley
AldousHuxley's picture

Here is how the world economy works.

 

create ponzi scheme and put yourself at the top

get future generations to join at the bottom

force foreigners to join even lower with gunboat diplomacy

don't let anyone else create their own ponzi pyramid.

 

tada! you are the king of the world with your assets all of sudden made you "rich"

Sat, 09/15/2012 - 02:03 | 2798127 Sir Edge
Sir Edge's picture

This Time... Ray... It IS different...

Due to the extent of the corruption in the system...

In past economic recessions and depressions (1873, 1907, 1921, 1930's, etc) the GeoPoltical-Economic System was ONLY corrupt at the margins...You still had many people in Political and Economic power who were moral and 'who did the right thing'... or even TRIED to do the right thing...

Not this time...

Now the corruption is systemic... We have a system saturated with moral hazard, cronyism and plutocratic fraud... To The Brim...

The Corruption is Geo-Systemic... The Barbarians Are No Longer At The Gate...

Mirror... Mirror On The Wall...

Cj...

Sat, 09/15/2012 - 15:19 | 2798144 putaipan
putaipan's picture

who got the doo like romoney?

one little fuckin' greenie !?!

this guy pointsout the obvious

and you people got ONE LITTLE FUCKING GREENIE!

i feel like asking for one or two more knives up my ass...either that or another oil deal with tony...

(edit- 23 little greenies and counting.....there we go)

Sat, 09/15/2012 - 09:33 | 2798366 spanish inquisition
spanish inquisition's picture

As more people learned how it worked, they were brought in on the game. Increasing operating overhead and the vig it needs to sustain the status quo.

In the past you could clean out the weak hands with inflation and they would put it down to bad luck. Now you will have everyone wanting back in right away at the start of the new game because they know how the ponzi operates.

That sets the stage for a dramatic housecleaning this time around.

 

Sat, 09/15/2012 - 10:21 | 2798430 holdbuysell
holdbuysell's picture

I would add another reason this time it's different: Derivatives in massive quantities. Please call out if this basic premise is incorrect.

Dalio describes all debt delveragings as being a combination of austerity, debt restructuring and money printing. Please correct me if this is incorrect, but I believe we never before when into these debt saturation situations had derivatives that dwarfed the sized of the entire system itself.

Thus, while austerity can be practiced to a degree, debt restructuring/write-downs cannot happen (e.g. Greece) because that will blow the derivatives complex sky high, taking down the entire financial system. Thus, this time will be different in that the deleveraging must come primarily through printing. Massive printing.

And therein lies the rub: print all you want to deleverage, but when the inflation becomes intolerable, people's confidence will snap (be lost) and now you've entered an entirely different 'state' within the system that will never allow one to go back to the previous state.

Sat, 09/15/2012 - 15:06 | 2799009 billsykes
billsykes's picture

He also states that one mans debt is another mans asset. 

Missing the premise that the money comes from nothing. If it does come from nothing, its a no brainer to get closer to that genesis of so called asset creation. You can have all the deleveraging you want but the closer to the source or being the source , nothing will ever happen to you. Think about it, all the banks go broke- the economy is in shambles, riots in the streets, that kind of thing- who  has access to a old or new system and has the infrastructure for credit and debits, gold standard or something else entirely? the banks.  They will always win, even if you overthrow the government, you need funding- that funding comes from....... financial institutions.  Say you do over throw the govt, then what? you need someone to keep the lights on, keep the water running- you have to pay someone to do that, even in a full on perfect barter system there would be a need for a bank or a store of excess barter credits.

 

I try to never put faith in oracles, ray's whole premise is that he has figured it out, until he doesn't.

Me, I think it will be some kind of regulated (read central planning) type system that is totally opaque and is run by algorithms constantly regulating and monitoring every transaction and adjusting accordingly.

 

Fri, 09/21/2012 - 10:56 | 2817895 Whiner
Whiner's picture

Even algos have fundamental premises built in, like rate of inflation, etc. Not built in: whir and zip of bullets, Molotov cocktails, etc. Nope. Shut down and restart by strong man. Not pretty.

Sat, 09/15/2012 - 11:56 | 2798577 NewWorldOrange
NewWorldOrange's picture

"Now the corruption is systemic... We have a system saturated with moral hazard, cronyism and plutocratic fraud... To The Brim..."

So much truth in that Sir Edge. The best regulator in any economic system is morality. Every law or rule is insignificant by comparison.

Anyone American who is at least, say, about 50 or older, remembers the attitudes of people toward politicians and government and the system, in the 70s, and how very different it is today. Something happened during the 80s. GREED became good. Big government and big debt became good. Bankruptcy lost its taint, as did living on the dole. "Strangers" were no longer adults to be respected but potential predators, as were teachers. Bragging became the norm ("My child is the smartest kid at Richbitch High".) Humility died, as did any form of sublety. Showing off your wealth become good. Keeping up with the Jones's became imperative. Guys like Woodard and Bernstein were no longer welcome in the newsroom. Everything was for sale. EVERYTHING. Including your privacy, something SANE people used to cherish.

It's only gotten worse. GREED RULES EVERYTHING NOW. The love of money won out. If I were a religious person, I'd probably be convinced that the Rapture happened, and the saintly folks all got swept off to the decent and pleasant Planet Earth.

We all live amongst madmen now. Most everyone around us are petty Satans.

Say, can I film you riding a bike off a cliff with a 20" dildo hanging out yer ass for a Youtube video? The chicks will really dig it man...in fact I just filmed those chicks for a new pilot I call "Idiotic Anti-Morality for Sale", but the producers want to call it "Keeping Up With the Kardashians."

Fri, 09/21/2012 - 11:05 | 2817940 Whiner
Whiner's picture

Yeah, uh, what happened, was dohse kids of the 60s, uh that Woodstock crowd, uh yeah, they grew up ya'see. They were spoilt, anchored only in themselves and dope. Then they spoilt their children and ' bout everybody else. They's votin for Hopey Clown, and dem other clowns, dey voting for Mittens. De rest? Deyz buying' gold. Dats what I hear. Yassuh!

Fri, 09/14/2012 - 22:40 | 2797892 PiratePawpaw
PiratePawpaw's picture

In the history books, monumental events are described in just a word or a paragraph. It takes seconds to read. To those who lived them, they took years. We are living history. We want it to be quick and concise, but reality takes a bit longer. sorry.

This is a marathon, not a sprint. In the end this system will implode to be replaced with a new and improved system. (after a suitable period of chaos) It is happening NOW. The problem is that NOW isnt a day or minute or nanosecond. It is a month or a year or a decade.

You cant day-trade your way out of this. Its a long game. Invest all your assets wisely, including time. Play with your kids/friends while you wait for the end; it might take a while.

patience is a virtue

Fri, 09/14/2012 - 23:19 | 2797962 uff the fluff
uff the fluff's picture

Meh. Things have been almost exactly as they are for 300 years and were surprisingly similar for at least a thousand or two before that. There won't be some brave new world after the next big war. We could however see the end of any edifice of democratic or republican governance but those have come and gone and will return again if we aren't all dead.

 

You're damn right about spending time with family and friends though.

Sat, 09/15/2012 - 01:14 | 2798098 iDealMeat
iDealMeat's picture

+1 to you and +1 above.  The real wild card here is Mother Nature..

Humanity is so insignificant.

We're mold on an orange...

people are cancer on the planet.

Fri, 09/21/2012 - 11:11 | 2817980 Whiner
Whiner's picture

Nahwwww man. Mankind created in image of God, but badly fallen, depraved beyond confusion. God will come to get His redeemed after global NWO is established. Won't be long now. Things moving damned fast now. Best listen to a Real Savior Who is not silent.

Sat, 09/15/2012 - 07:18 | 2798250 Zadok
Zadok's picture

Yup! Right on. New system same as the old system with just enough Strategic pausing to get 'support'. He really nailed the pacing concept with most people experiencing it for the first time. This time appears different only in that it looks like the naked dash to the end game of perpetual debt servitude on a global scale as opposed to nationally. Replacement coming soon after sufficient suffering to soften up the weak hearted...

Sat, 09/15/2012 - 02:21 | 2798145 putaipan
putaipan's picture

patience is a virtue...but i don't have the .....tiiiiiiiiiiime!    - d.byrne

Sat, 09/15/2012 - 08:17 | 2798288 petolo
petolo's picture

Profound. Life is a long study whereit is best to embrace past and present virtues than toto grasp at 30 minute chimeras and facile analysis. Maybe it won,t rhyme this time. We,re going to need somesome new thinking in the lifeboat this time.

Sun, 09/16/2012 - 00:29 | 2799919 scaleindependent
scaleindependent's picture

Bullshit!

" this system will implode to be replaced with a new and improved system.".

Who said?

The next system will be worse. There are too many reasons, from an apathetic, ignorant populace, to peak energy, to continued US imperialism , etc etc

Sat, 09/15/2012 - 08:13 | 2798284 Lost Wages
Lost Wages's picture

All you have to do to make it in Journalism is copy everything the CFR says in its own articles. In no time you'll be Editor. Maria Barfalomo's future looks bright.

Fri, 09/14/2012 - 22:10 | 2797850 sodbuster
sodbuster's picture

Yep! CFR can also be spelled NWO.

Fri, 09/14/2012 - 23:02 | 2797918 Robot Traders Mom
Robot Traders Mom's picture

"Um, CFR? They don't need the lesson, they know how this catastrophe goes because they're the cause of much of it."

 

I like the fact this is the only website in the world where you get a consensus thumbs up for bad mouthing the CFR! Like-minded people, thanks for visiting my site and spreading Liberty! www.TopTheNews.com

 

Sat, 09/15/2012 - 00:10 | 2798024 Atomizer
Atomizer's picture

Where is your son? Did he snag the PS3 from the basement and head for NK? LOL

Sat, 09/15/2012 - 09:29 | 2798357 bank guy in Brussels
bank guy in Brussels's picture

On this post today on Bridgewater's Ray Dalio and his presentation, the crappy 'slideshare' programme here is crashing the computer for some of us every time we open the ZeroHedge page on this.

For those who would like to read the Ray Dalio presentation on 'How the Economic Machine Works: Leveragings and Deleveragings', you can find it directly in simpler pdf form here:

http:/howtheeconomicmachineworks.com

Or here:

http://bwater.com/Uploads/FileManager/research/how-the-economic-machine-...

Or you can read the presentation and interview with Ray Dalio at the CIA-affiliated Council on Foreign Relations ... quite a creepy organisation, of course:

http://www.cfr.org/united-states/ceo-speaker-series-conversation-ray-dal...

Fri, 09/14/2012 - 20:22 | 2797617 babylon15
babylon15's picture

Why is it, that every time a manager broadcasts their strategy to the world, they soon have their worst year ever.  Reminds me of John Paulson.

Sat, 09/15/2012 - 11:52 | 2798581 Snidley Whipsnae
Snidley Whipsnae's picture

Dalio is a poor speaker but much better at putting his thoughts down on paper in a manner that makes them comprehensible.

It did not help Ray that Maria continually interjected questions that were off the topic he was attempting to explain.

I also noticed that when confronted with the 'inflation' question he immediately jumped to the same macro economist tactic that many resort to; 'I am not talking in the gas/grocery sense of inflation but the large deleveraging that is taking place in assets across the world'... bs, iows.

Ray best stick to giving talks to groups like the CFR and avoid talking to Main Street... people on Main Street believe that gas and grocery prices matter!

Ray admitted in the second video that 'large profits in stocks/bonds are not going to happen as in the past' (in reference to a comment attributed to Bill Gross of Pimco)... So, is Ray looking for a cushy job somewhere in the government?

Fri, 09/14/2012 - 20:24 | 2797624 Atomizer
Atomizer's picture

Just a little Friday geopolitical comedy. Watching Obama and his peanut gallery has become humorous.

 

Hillary Clinton Ad - 3 AM White House Ringing Phone

 

D?MOC?AT Pa?ty D?a? L?ad?? – “Hello Bibi, how are you?”

 

 

Netanyahu – “I was hoping to get more than a phone call at 3AM; after all you are meeting the Muslim Brotherhood Egyptian Prez in a few days.”

 

 

D?MOC?AT Pa?ty D?a? L?ad?? – “I’m sorry for that, but my schedule is too busy. But I’m taking care you.”

 

 

Netanyahu – “Taking care, HOW? Iran will have nukes before Christmas, while nothing done up to now has worked.”

 

 

D?MOC?AT Pa?ty D?a? L?ad?? – “We are doing all we can. But your comments are making me lose face. In fact, I can blame you for my ambassador getting raped and killed in Lybia tonight.”

 

 

Netanyahu – “Me??? We told you four months ago of what they were up to. How can you blame me for what you knew would happen months ahead of time?”

 

 

D?MOC?AT Pa?ty D?a? L?ad?? – “All that is water under the bridge. But you know personally that if I lose face, the world becomes unsafe for YOU and me. By the way, you better call off your plans to bomb Iran’s targets, or else you will not have an IDF air force to protect you.”

 

 

Netanyahu – “What???”

 

 

D?MOC?AT Pa?ty D?a? L?ad?? – “If you attack Iran BEFORE my re-election, I will be forced to order my planes to shoot down your entire IDF air force, and then you will end up with Iranian nukes, and without an air force to protect you.”

 

 

Netanyahu – “I hope you are aware that such a move would mean a second Jewish Holocaust.”

 

 

D?MOC?AT Pa?ty D?a? L?ad?? – “Don’t exaggerate Bibi; you Jews always speak in hyperbole. You know as well as I, that I am better qualified to defend you than your IDF.”

 

 

Netanyahu – “Like when? When have YOU ever defended Israel from her enemies?”

 

 

D?MOC?AT Pa?ty D?a? L?ad?? – “You don’t know all the requests I constantly get from your Mideast neighbors to help them invade you, and I have kept them back. I’m actually protecting you. By the way, I need $500 million in campaign contributions if you know what I mean…”

 

 

Netanyahu – “I do know what you mean. I am not Hugo Chavez though; so I can’t dispense with the money of Israeli taxpayers. But, I suggest you don’t try that line again. In fact, I suggest you keep your air assets from getting in our way, or else you may find out the hard way that I mean to protect Israel. This ends our chat, good night.”

 

 

D?MOC?AT Pa?ty D?a? L?ad?? – “Don’t hang up please. What do you mean? Damn, he hung up!!!”

DEAR LEADER's latest call to NETANYAHU on 9/11/2012 

Fri, 09/14/2012 - 22:23 | 2797861 blunderdog
blunderdog's picture

Eschew excess verbiage.  You're harming the message.

Fri, 09/14/2012 - 20:25 | 2797626 kito
kito's picture

Tyler maybe its better to post krugman interviews, at least he is more entertaining.... dalio now warns that the u.s. SHOULDNT WORRY ABOUT TOO MUCH DEBT....that the u.s. should be worried about austerity.....this from a guy who says the u.s. is deleveraging beautifully.......dalio has proven to be a globalist shill.........

Fri, 09/14/2012 - 21:16 | 2797742 WhiteNight123129
WhiteNight123129's picture

Kito, Dalio is right we are going to have neither hyperinflation nor deflationary collapse, we are going to destroy the capital of the rich and corporations in this deleveraging. Dalio probably read Tooke and Fullarton, especially on credit having nothing to do with velocity (bills of exchange for Tooke), and also on circulation and wages relationship, and the fact that circulation and inflation are related, while devaluation and inflation are not in the short term. Finally long term rise in interest raise cost of production and rise prices up. Devaluation of currency against assets does not increase the circulation in the short term.

 

Fri, 09/14/2012 - 22:33 | 2797875 DavosSherman
DavosSherman's picture

I'm not, by any means, disputing your fine Dalio is a prove glbalist shill.

I just want to point out that Dalio is 10 fucking years late to the bullion party, and those snorting gold are anything but worried about BS austerity.

http://www.financialsense.com/contributors/davos-sherman-okst/sterling-samos-moment

Fri, 09/14/2012 - 23:39 | 2797993 Reese Bobby
Reese Bobby's picture

Dalio is so smart he always sounds fucking stupid.  That must be some special level of brilliance.

Sat, 09/15/2012 - 01:13 | 2798094 Element
Element's picture

I suspect he and Richard Koo are lovers ... the Krug joins in sometimes

Fri, 09/14/2012 - 20:33 | 2797641 Gloeschi
Gloeschi's picture

Did Maria chew a gum during her intro? Her questions reveal how clueless she is without a teleprompter. And Ray, unable to utter a complete sentence or to give a straight answer to simple questions, looks at HER for help?

Fri, 09/14/2012 - 20:42 | 2797658 topspinslicer
topspinslicer's picture

I was going to watch this but am I to believe the CFR has observations and answers that will benefit individual freedom? Color me skeptical...

Fri, 09/14/2012 - 20:48 | 2797675 Jam Akin
Jam Akin's picture

This kind of thing is the hedge fund equivalent of a company name going up on a major sports stadium.  A major step along the path to near term hubristic doom.  

Fri, 09/14/2012 - 20:52 | 2797687 Cabreado
Cabreado's picture

"It's never different this time."

In a corrupt system, it eventually most certainly will be.

Anyone discussing economic theory who still neglects the corruption and neglects social forces is spouting self-serving drivel,

perhaps even unwittingly... and that is a most dangerous thing in itself...

and

that's how We got here.

Fri, 09/14/2012 - 22:31 | 2797872 gjp
gjp's picture

Well said cabreado

Fri, 09/14/2012 - 23:25 | 2797973 uff the fluff
uff the fluff's picture

When's the last time the world was run by the non-corrupt then?

Sat, 09/15/2012 - 09:48 | 2798393 WTFx10
WTFx10's picture

Sumarians

Fri, 09/14/2012 - 20:53 | 2797690 lolmao500
lolmao500's picture

Works? More like bullied.

The FED asset sheet doesn't matter. The deficits don't matter. The debt doesn't matter. The ratings don't matter. The fundamentals don't matter. All that matters is WILL BEN PRINT??

In other news, oil in Canada just took a hike, thanks to Ben. Gas was 5.25$ a gallon Monday. It's now 5.86$ a gallon. And it's going higher thanks to Ben insane policies.

Fri, 09/14/2012 - 22:47 | 2797900 You Didn't Buil...
You Didn't Build That's picture

Dalio does not own oil?

That's definitely odd in this environment.

Fri, 09/14/2012 - 20:57 | 2797706 DavosSherman
DavosSherman's picture

Balls deep in gold.

Fri, 09/14/2012 - 22:39 | 2797729 blunderdog
blunderdog's picture

Maria seems a lot more pleasant early in the AM.  But did she forget to take out her retainer?

 EDIT 1 ----------

Money quote: "In every generation, there is some period of time that will ruin...there is a RUINOUS asset class and will destroy wealth, and YOU DON'T KNOW which one that's gonna be.  In your lifetime."

MB: Will we have a recession in 2013?
RD: I'd like to distinguish between a recession and a depression.
MB (breezily): Sure.
RD: I think there's more a risk of a depression than a recession.

I think he hits on something with  that "recession" vs. "depression" thing.  In Ray's mind, it seems to be the difference between "that which can be fixed with monetary policy" and "that which is beyond all hope of repair by monetarists."

WTF moment-- blunderdog paraphrases "[The US economy]...is sustainable as long as we continue to have good fiscal and monetary policy."

He doesn't *mean* to imply we have either, does he?

  EDIT 2 ------------

(Man, I was down-arrowed before I even commented for serious.  Poor me.)

Fri, 09/14/2012 - 21:11 | 2797736 Earl of Chiswick
Earl of Chiswick's picture

alternate link

Ray Dalio  |  October 2008 (Updated March 2012):

 

http://www.bwater.com/home/research--press/how-the-economic-machine-work...

 

Fri, 09/14/2012 - 21:11 | 2797737 economicfreefall
economicfreefall's picture

Faber about the money printers...

“If I had messed up as badly as Bernanke I would for sure resign. The mandate of the Fed to boost asset prices and thereby create wealth is ludicrous — it doesn’t work that way. It’s a temporary boost followed by a crash,” Faber said.

“QE helps rich people whose asset prices go up and whose net worth then increases but it doesn’t flow to the man on the street who is faced with higher costs of living with price rises. You just have a small economy that is booming but the majority of the economy is damaged by QE,” he said.

“The money printers are responsible for this crisis. If we continue with this expansionist monetary policy we won’t be facing a fiscal cliff it will be a fiscal grand canyon,” he added.

https://miningstockvaluator.com/news.php?id=123

Do NOT follow this link or you will be banned from the site!