Dalio: "There Are No More Tools In The Tool Kit" - Complete Charlie Rose Transcript With The Head Of The World's Biggest Hedge Fund

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When it comes to reading the world's "tea leaves", few are as capable as Ray Dalio, head of the world's biggest (macro) hedge fund, Bridgewater Associates. So when none other than Ray tells PBS' Charlie Rose that "there are no more tools in the tool kit" of fiscal and monetary policy to help America kick the can down the road, perhaps it would behoove the respective authorities to sit down and listen. Or not... and just to buy S&P futures in hopes that record career risk is big enough to force every other asset manager in the market to do the dumb thing and follow the crowd of lemmings right over the edge. Luckily, there are those who have the luxury of having both the capital and the time to not be drawn into the latest sucker's rally. More importantly, Dalio shares some unique perspectives on what it means to run the world's largest hedge fund, his perspective on social anxiety, and Occupy Wall Street and thus the demonization of wealth and success (in a way that does not imply crony capitalism: see Omaha), his views on taxation, on China, on the markets, on Europe and its insolvent banks, and most imporantly on the economy and why the much pained 2% growth (if that) will not be nowhere near enough to alleviate social tensions, such as those that have appeared over the past two months. Dalio's conclusion, in responding to whether he is optimsitic or pessimistic, to the current environment of broad delevaraging of the private sector, coupled with record releveraging of the public, is that he is "concerned." And that's why, unlike the recently unemployed David Biancos of the world, who never exhibit an ounce of skepticism, Dalio is among the wealthiest men in the world (and hence a prime target of the #OWS movement). Well, that and also being smarter than most.

Full video interview after the jump

And complete transcript:

CHARLIE ROSE: Ray Dalio is here. He is the founder of Bridgewater Associates. He created the investment firm in 1975 out of a two-bedroom apartment in New York City. Today the company managed roughly $125 billion in global investments. Its clients include foreign governments, sovereign banks, central banks and institutional pension funds.

Over the last two years, Bridgewater ranked as the largest and best- performing hedge fund in the world. In 2010, his returns were greater than the profits of Google, Amazon and eBay combined.

I`m very pleased to have Ray Dalio at this table for the first time to talk about a perspective on the global economic scene and a whole range of issues having to do with where we see ourselves and also a look at his own philosophy and what has informed his own opinions and the way he looks at the world. Having said that -- welcome.

RAY DALIO: Thank you.

CHARLIE ROSE: It`s great to have you here.

RAY DALIO: It`s great to be here.

CHARLIE ROSE: What is Bridgewater Associates?

RAY DALIO: It`s a global macro firm. We assess what the world economy is like and what -- how asset classes will change and we are managing money for pension funds and endowments like you described; the Pennsylvania teachers, those types of pension funds. We`re trying to keep them safe.

CHARLIE ROSE: When you look at the world today, the global economic picture, I read today Goldman Sachs had a disappointing performance. JP Morgan did not do as well as some had hoped it might be. What`s happening with financial firms?

RAY DALIO: I think it`s important to understand that we`re going through a deleveraging. So we have to understand the big picture is -- there`s a deleveraging. Three big themes: first there`s a deleveraging; secondly we have a problem with monetary and fiscal policies are running out of ammunition; and thirdly we have an issue in terms of people most importantly who are at each other`s throats politically and globally in terms of having a problem resolving those.

Imagine you earned $100,000 a year and you didn`t have any debt. You can go to a bank and borrow $10,000 a year. You can spend, therefore, $110 a year. When you spend $110,000 a year, somebody else earns $110,000 and they can go to a bank and there`s a self-reinforcing process in which your debt rises in relationship to your income.

And that goes on for a long time and that goes on for 50 or 75 years through history. We`ve had 50, 75-year cycles and then you reach a point where you can`t anymore get more debt and the process starts to change. And you can`t leverage up. Traditionally the private sector leverages up, we leveraged up then we got to a point in 2007 where we had a bubble and that same sort of bubble that happened in Japan, same sort of bubble that happened in the Great Depression, meaning we reached our debt limits. Europe`s reached its debt limits.

So then we begin the process in reverse as you can`t spend as much you -- somebody else`s income falls. And that process works in reverse. So we`re in a deleveraging. So I think that this is important globally. That`s what Europe`s in.

So when we deal with Goldman Sachs or when we deal with banks and when we deal with Europe I think you can break the world into two parts, there`s the debtor-developed world which has reached its debt limits and is going through a deleveraging. Then there`s the creditor-emerging world, the countries like China which are competitive and are beginning to have those big surpluses and they`re lending us money. So we have this big imbalance in the world.

You can break the world into two parts. Debtor-developed countries and emerging-creditor countries and they have a big imbalance which is a debt problem. That`s the nature of the beast of what`s going on.

CHARLIE ROSE: And how long would the deleveraging take place? Ten years?

RAY DALIO: These take place over ten years. The key is to spread it out as much as you can. Make sure that it`s not disorderly.

CHARLIE ROSE: let me talk about the dysfunction issue. We can`t solve our problems domestically in the United States, our economic problems, unless there`s some sense of respect for other people`s views and some sense of it being able to come together and find solutions that are in the interest of the country, not necessarily always in the interest of the ideology or the party.

RAY DALIO: Yes. And I think that`s the problem so pervasively when we`re talking about culture. It is -- when people disagree and you can take thoughtful people disagree, you have then the potential of learning a lot. If people who were disagreeing can say why do we disagree and work through that conversation in an intelligent way to try to find out what`s true, you can learn, you can make progress, it can be a fabulous thing.

When you instead have people who were talking behind each other`s backs and all criticizing and all looking for blame, this is a problem. I think the real question is how we approach those -- can we approach that in a thoughtful way in which we work that through?

Let`s say for example the government budget balance.


RAY DALIO: The government budget balance if you raise taxes -- if everybody just sucked it in a little bit, you raise taxes by three percent, you cut spending by three percent -- I`m using three percent as an example to say not much. Everybody should be able to pay three percent more or you should be able to cut your expenditures by three percent.

CHARLIE ROSE: If the government did that --

RAY DALIO: If the government did that, they would eliminate half the budget deficit -- it`s estimated about $8.5 trillion over the next ten years is what we`re going to have as a deficit, they will eliminate half of that. Now --

CHARLIE ROSE: Over how long a period?

RAY DALIO: The next ten years.

CHARLIE ROSE: The next ten years, all right.

RAY DALIO: Now, I`m asking you if we could have every American -- can everybody pay three percent more? Can everybody just spend three percent less? You can make a heck of a contribution to that.

Instead we have a division that`s going on in which we -- the basic division is Republicans will say that we shouldn`t raise taxes.

CHARLIE ROSE: Or even reduce deductions.

RAY DALIO: Yes -- in that way of raising taxes. So we -- and Democrats say that we must raise taxes because we can`t cut the spending. So the delineation that as we came into that was the debt limit issue, that remains the debt limit issue.

And there`s vested interests involved; 70 percent of the taxes are paid by the top 10 percent of income earners, income taxes. And so -- so what we have is a division here in which there`s not a coming together, I believe, and that means that in a deleveraging at a difficult time we`re not dealing with it in the best possible way. But it`s human nature.

CHARLIE ROSE: We are doing as they say, kicking the can down the road and not dealing with it. Suppose the super committee does not reach an agreement in terms of its requirement and therefore the mechanism -- the trigger mechanism kicks in? What does your team think about that and what impact will that be?

RAY DALIO: Charlie, I`m meant to be a realistic person and sometimes when there`s concerns it`s difficult to talk about difficult situation. So I want to try and answer your question as honestly as I possibly can but I want to say that I`m very concerned not just of that. I do not believe that we will find a political solution. I think that that would not be -- I`m pessimistic about that.

CHARLIE ROSE: So you have the same opinion that Standard & Poor`s had when they reduced --

RAY DALIO: Essentially.

CHARLIE ROSE: -- America`s credit rating.

RAY DALIO: Essentially. So I think -- and by the way I think it`s very important to understand that the government debt is the terrible challenging issue that we should talk about maybe but also more important is the private sector debt. So that resolving the public sector debt does not resolve the problem.

That individuals face the same problem meaning that they`re overly indebted and because they`re overly indebted and spend a lot of their consumption through borrowing and they had a -- it was like if you borrow you have a party and everything`s good and you have a prosperity and you -- you have your party, you hire the caterers, they`re employed and everybody`s happy.

So that there`s a private sector debt issue at the same time as the public sector debt. They`re both. So if you resolve the budget deficit, you do not resolve the private sector debt issue. Both of those things mean we`re both overly indebted. We cannot -- the amount that we owe and have promised in its various forms can`t be paid.

Now we can accept is that right or wrong but let`s -- and I think we need to talk about it forthrightly whether that`s right or wrong. And if it`s right -- and I believe it`s right -- then we have to talk calmly and logically about how we can approach that and deal with it in the best possible way without having this battle of one side or another.

Like the issue of is it better to have austerity or stimulus? The basic problem there is that there`s not a quality conversation on the subject. So if people who disagree could sit down and work on a television show or something, work through, how does the machine work, how does the economic machine work? What does it mean to each of those? How has it worked in the past so that they can understand what exists. Get past the ideology part of it and get on with trying to say we have is very difficult situation and how do we deal with it in our best possible way together?

We can`t solve the problem easily because we still have too much debt. But we can move forward in being able to make the best of it. We can spread it out, we can keep orderly we have a situation now in which we have a very severe situation, not only because we have a deleveraging going on, but we have a situation in which monetary policy cannot work the way it worked in the past, that fiscal policy will not be stimulative.

CHARLIE ROSE: Some people say that they describe that as there are no more tools in the tool kit.

RAY DALIO: There are no more tools in the tool kit.

CHARLIE ROSE: In terms of fiscal and monitory policy.

RAY DALIO: Yes, so number one is we have a deleveraging. Now that deleveraging means we`re going to have more debt problems. You`re going to see -- no matter what is solved in Europe you will have a deleveraging. Banks will lend less and lending less will mean a contraction. That`s -- that is what I believe is the case, we should talk about whether or not that is the case. Thoughtful people should discuss that.

If it is the case, we should then approach how do we deal with that? Now - - so I`m saying there`s a -- I believe there`s a deleveraging going on. There are no tools in the tool kit and everybody`s at each other`s throats.

So that there is not a quality conversation of what is true; how do we best handle it?

CHARLIE ROSE: We have had that debate about the need for growth -- which would be a stimulative impact on the economy and at the same time the need to reduce spending because of the debt and the deficit as well as the long- term debt. You need also to make investments for the future in terms of science and research and a whole range of issues so that that the country - - this country can be competitive around the world. Make sure it trained scientists and doctors and people who make a positive long-term contribution to the economy.

What is your own analysis as to how we find the right balance between austerity and growth? Or austerity and stimulus?

RAY DALIO: I think -- I think it just comes back to the fundamentals same for us. Individually, the economics for government work the same as the economics pretty much for the individual that whatever we expend money on, we have to make sure -- there`re certain things that are critical.

First you have to make sure that it will -- it produces an income to pay it back. Investment, in other words, in some fashion or another. What we have to do is make sure that we put that money out and we -- let`s say we build infrastructure, I believe that you can build infrastructure. I believe that you can hire people who unproductive people -- people now who are idle, I think the worst thing now is not only the economics of it but I think the social impact of individuals who are not working or are living beneath their potential is a -- is a dangerous thing.

It`s a social tragedy. It`s not good for them; it`s not good for the society. It`s a cancer that exists. They have to be made productive. But you can`t waste money doing it.

So those jobs -- whatever they may end up being -- or those investments have got to have a payback. And then --


CHARLIE ROSE: Did the stimulus program that was enacted by the Congress after the President -- this President -- assumed office, did it make a contribution to growth at all?

RAY DALIO: Oh, it made -- it certainly made a big contribution --


CHARLIE ROSE: It did create jobs? Because some people would like to believe that that stimulus program didn`t create jobs and you`re here to say with your own analysis it did create some jobs.

RAY DALIO: Oh, a lot.


RAY DALIO: Ok but we -- at the same time -- and it created growth and it created some jobs. At the same time we have this overriding factor that is depressing jobs. So it created jobs in an environment -- and let`s -- so let`s turn to what is depressing jobs.

CHARLIE ROSE: Right. What is?

RAY DALIO: Ok. What`s depressing -- what`s depressing jobs is that the world supply and demand for labor has changed. In other words, there`s a lot more people working as China came on and India came on and they are competitive. There`s a world supply of labor has change -- has increased and technology has had an effect.

So we`re in an interesting era because I think almost and if you think of a person as -- in a machine, an economic machine as being tool, a part of that economic machine the demand for labor has changed in a very profound way. It`s an interesting question. We might enter into a period in which we don`t need people as tools. So what does that mean?

CHARLIE ROSE: The two reasons that people are enormously curious about you: number one, is simply the objective success of what Bridgewater has done and become. And secondly there are interesting questions as to how you think about the world and how you think about investments.

You have mentioned a couple times the economic machine. Give us a sense of what that means to you. Because my understanding is that`s central to a philosophy you have about the way the economy works.

RAY DALIO: Reality works in a certain way. You have to understand how reality works. If interest rates go to zero and you can`t ease monetary policy, how does the economic machine work? Ok, a central bank can make a purchase and get money in the hands of somebody else or blah, blah, blah, blah, blah.

There is a certain machine. It is operated this -- you can raise your debt relative to your income to so far but you can`t raise it more than that. And then when you reach that, that changes.

So the private sector cannot -- there are such laws of economics, such realities of if -- let`s say Europe. I`ll give you another one. We have a debt problem in Europe. You can either transfer the money from one rich country to a poor country --

CHARLIE ROSE: Right, Germany to Greece.

RAY DALIO: You can print the money.

CHARLIE ROSE: You can`t do it.

RAY DALIO: Or ECB could say I`ll find a way to do it, whatever.


RAY DALIO: Or you can write them down. Those are the choices.

CHARLIE ROSE: So-called hair cut?

RAY DALIO: Hair cut.

CHARLIE ROSE: Machine for you is a theory of the way things work?

RAY DALIO: And so -- yes, that`s right. It`s a description of reality. If I ski and I`m putting my weight on my downhill ski I will make a better turn than if I don`t.

CHARLIE ROSE: And you always make a point that you know what you don`t know and that`s equally valuable.

RAY DALIO: More valuable. I want to say that -- so this is the whole philosophy. I -- I so, know that I can be wrong; and look, we all should recognize that we can be wrong. And if we recognize that we`re wrong and we worry about being wrong than what we should do is have a thoughtful dialogue.


CHARLIE ROSE: Ok, but that --


RAY DALIO: So the way I get to success. The way -- it`s not what I know. I`ve acquired some things that I know along the way and they`re helpful.


CHARLIE ROSE: It is -- it is -- it`s not what you know but it is --


RAY DALIO: It`s knowing what I don`t know or worrying that I won`t -- that I`ll be wrong that makes me find --


RAY DALIO: Well, I want people to criticize my point of view -- I want to hold down.


RAY DALIO: Say I have a -- I think this but I may be wrong. And if you can attack what I`m saying -- in other words stress test what I`m saying -- I`ll learn.

CHARLIE ROSE: So that everybody knows so therefore people will be free to tell you what they think.

RAY DALIO: Of course.

CHARLIE ROSE: Because you know that it will not be held against you and you can benefit from it.

RAY DALIO: That`s right.

CHARLIE ROSE: So anybody in a meeting at your company can stand up and say Ray --


RAY DALIO: Absolutely.

CHARLIE ROSE: -- you`re absolutely wrong.

RAY DALIO: Of course.

CHARLIE ROSE: And you have not been precise, and your assumptions are flawed.

RAY DALIO: Oh it`s so essential, right. There`s -- the -- the number one principle at our place is that if something doesn`t make sense to you, you have the right to explore it, to see if it makes sense.

I don`t want people around who do things that they don`t -- they don`t think makes sense because I`m going to have not-thinking people.



RAY DALIO: So that they have not only the right, they have obligation. Don`t walk away thinking something`s wrong.

CHARLIE ROSE: Failure teaches you more than success?

RAY DALIO: Of course. One of my favorite books is "Einstein`s Mistakes."

CHARLIE ROSE: Right. And because it showed you that even Einstein, the most brilliant person of the century in common judgment made mistakes?

RAY DALIO: The great fallacy of all -- I think of all of mankind practically -- I mean that`s a big statement -- but the great fallacy is that people know more than what they do and there`s a discovery process and so when you look at -- that`s the process for learning.

The process for learning is to say "I don`t know." Like, I`m -- I`m totally comfortable being incompetent. If I -- if I -- I like being incompetent. I don`t mind being an incompetent. If I don`t -- how -- how much can you be competent about?

And so that whole notion of do you like learning? Do you like finding out what`s true and building on it without an ego? And that becomes the problem. How many statements do you listen to people that begin "I think this, I think that," where they should be asking "I wonder."

CHARLIE ROSE: What`s in here? And why did you write it; because you wanted people who come to work with you to understand what your own philosophy was about openness, about management about dialogue, about the machine.

RAY DALIO: Yes. So what -- I think every place has to have a culture.


RAY DALIO: And culture is the values. What -- when values are leaving (ph) out and so for example the number one value is it has to make sense to you, we have to talk about it, we have to work it through in a none egotistical kind of way. And so it`s an unusual place and it`s an unusual culture.

CHARLIE ROSE: Are you offended when people sometimes label it a cult?

RAY DALIO: I think that -- I think a cult -- when I think of a cult it means believe this. And where -- it`s the opposite.

CHARLIE ROSE: Yes, you`re taken from on high.

RAY DALIO: In other words a cult mean -- yes. Somebody`s telling you believe this --


CHARLIE ROSE: Because I said so.

RAY DALIO: And follow it.

CHARLIE ROSE: Because I have a superior wisdom.

RAY DALIO: Ok, it`s exactly the opposite of that, right? The number one principle is "Don`t believe anything; think for yourself." And now let`s go through a process of what is true together. But we can`t stop that with ego. We can`t let that barriers stand in our way. So we`re going to live in a culture in which we can do that.

Ok, now that`s opposite of a -- ok, it`s a belief system, in other words I`ll ask you do you believe that we should operate this way with each other. Ok, if you want to call that a cult, I think it`s the opposite of a cult, it means "think," right? Speak up. Don`t hide it; don`t talk behind people`s backs. Its talking behind people`s --


CHARLIE ROSE: Did you have these ideas for a long time or these ideas that you came to through, came to through your own experience and your own living and your own sense of what you read and what you question and you came to this?

RAY DALIO: Of course, of course through my whole life. Now as I say when I started at the markets, the knowing I don`t know and the liking to have people challenge me. So when I was young I did like that -- to know. I did know that I`m -- I`m an independent thinker and I know that for an independent thinker and I like to innovate. We like to innovate.

And if you`re going to have an innovative thinker, they made --there`s a high chance they`ll be wrong and if you have to have an independent thinker they`re going to have a different point of view than the next person.

So if you`re going to have innovation and independent thinking you`re going to have to have the ability to disagree, to find out what`s wrong and I learned through my whole experience day after day that the cost of being wrong is a terrible thing.

So I worry about being wrong and because I worry about being wrong I want to know what`s true.


RAY DALIO: And we have a community here, I want to know what`s true including my strengths and weaknesses so that I know how to deal with them and I want to be in a community of other people who want to do that.

CHARLIE ROSE: Do you believe as --


RAY DALIO: And by the way that`s connected to our performance.

CHARLIE ROSE: You have this dialogue with members of the Tea Party on the Republican side and the members of the President`s administration on the other side. What would you tell them about the necessity for revenue in the next ten years?

RAY DALIO: Well, here`s what I would be telling them.

CHARLIE ROSE: You`ve got to tell them more than just talk.


RAY DALIO: Ok, no but here`s what I would say. Can I, Mr. President -- Mr. Alternative Republican --


CHARLIE ROSE: Mr. Cantor, let`s say.

RAY DALIO: Ok, can we first just together sit down in a room, together with whoever you want to bring in, and go through an exercise of finding -- now forget what we should do at the moment -- just find out a discussion of how does the economic machine work? How does the machine work? We`re not going to get to what we`re doing at the moment. And can we agree on how the machine works?

CHARLIE ROSE: Do you think they`ve done that or not?

RAY DALIO: I -- they don`t do that. They don`t -- this is the big thing. Everybody`s looking at what to do and there`s a debate --


CHARLIE ROSE: Well but no this is about can they do -- when I said do you think they have done that or not? Meaning have they set --


RAY DALIO: No, no, no.

CHARLIE ROSE: Let`s just test all of our assumptions about what`s necessary in the way the system works and the machine works?


RAY DALIO: No. No, so that`s the interesting thing. Everybody`s looking about what to do and each approaches it with a bias and we`ve not in a conversation that`s a quality conversation --


CHARLIE ROSE: And part of the argument comes -- has to do with how you read history too. Those people who were saying --

RAY DALIO: Well, we could do it together.

CHARLIE ROSE: Right, we read history together?

RAY DALIO: And you can at a very nuts and bolts level I can take any period of history and put it through my template. There`s a template I wrote that describes how I think machine works.


CHARLIE ROSE: Right, right. When you have signed "The Giving Pledge" with Warren Buffett and Bill Gates, have you not?


CHARLIE ROSE: When you look at the Buffett rule about 00 as a man who has a huge income, how do you feel about the Buffett rule vis-a-vis the way you look at it in terms of whether there needs to be more sacrifice on the part of people who are at the highest level of the economic --

RAY DALIO: So I -- so -- I think the answer to that is probably true.


RAY DALIO: Ok. I think that -- but I want to be clear what -- I want to say more than this on the subject. I think that there`s not enough discussion on people being -- how do we get people to be self-sustaining?

So I want -- so the number one thing I want for my kids, the number one gift I can give my kids or the number one gift that I can give anybody is that you`re self-sufficient.

I don`t -- it`s not a matter of even living standards. It`s the notion of if you`re self-sufficient you have the freedom to make your own choices --


CHARLIE ROSE: It`s like a difficult parable about giving fish and teaching how to fish.

RAY DALIO: Yes and you can make whatever choices in life you want to make but you`re self-sufficient. And on an ethical standard it means that what I`m giving is equivalent to what I`m taking -- self-sufficiency, right?

So what I want to do, what I think that we need to do is say this large percentage of the population, how do we make them useful? How do we make them self-sufficient? Let`s all agree on a goal of how to achieve that. So like my kids I don`t want to just give money. Let`s -- I give -- I`m going to give away a lot more than half of my money.


RAY DALIO: I`d be happy to give that to the government --


RAY DALIO: If the government put together programs that were like I`m giving away to charity to certain programs in which I believe the money is sufficiently used to help people.

Let`s say for example if the government created a series of programs that said there`s this education, teach for America. If I can read these things off, ok, of these types of things --

CHARLIE ROSE: All those you support.

RAY DALIO: Yes or it doesn`t have to be those.


RAY DALIO: It just has to be good.


RAY DALIO: Ok? If the government --


CHARLIE ROSE: The result has to be self-sufficient?

RAY DALIO: Yes. So for example Arne Duncan --

CHARLIE ROSE: The Secretary of Education.

RAY DALIO: Secretary of Education is a fantastic person for dealing with improving the quality of education in the United States and he -- "Race for the Top" and such.


CHARLIE ROSE: So you say I`d be happy for my taxes to be raised if I knew that the money would go to be administered by someone like Arne Duncan.

RAY DALIO: Oh, man. Or even create a series of quality -- I will -- I will fund that opportunity. Give -- don`t waste it. Ok, don`t waste it. Put it to good use for education, for opportunity.

So I`m -- I think that what the country`s most important thing to give anybody is opportunity.

CHARLIE ROSE: Let me take this downtown to where there`s an economic protest on Wall Street.


CHARLIE ROSE: In your sense -- you clearly have read about that and looked at it -- what do you think is at stake there and what do you think they`re saying to us?

RAY DALIO: I think the number one problem is that we`re not having a quality dialogue. So I wish that I could sit down --


CHARLIE ROSE: So somebody should be listening and --

RAY DALIO: No, no yes we get together, sit here in a room like you with those thoughts and understand how -- how -- what`s going on and what`s true. So for example on that particular case I don`t know that I adequately know the various points of views that are behind it.


RAY DALIO: I certainly understand the frustration. I understand the dilemma. I understand that there`s discontent. Ok --


CHARLIE ROSE: Yes, discontent about there`s somehow a feeling that --


RAY DALIO: Right so it seems to me --

CHARLIE ROSE: -- that some people did better because of the way the rules were or some people did better because --



CHARLIE ROSE: -- they had power to influence Washington and they didn`t.

RAY DALIO: So I think we need to work ourselves through that. I -- I`m sorry --

CHARLIE ROSE: No, no go ahead.

RAY DALIO: Ok, so I think that not only do we have to work ourselves through that, I would say like the question really is also a question that should be dealt -- designated for our legislators, our government. Because if the government makes the rules, people will behind either -- did they break laws or did they not break laws? This is a -- this is a question of how should behavior be managed?

Like I think I -- I think I did everything right, you know I -- I did well for my customers. My customers are pension funds, teachers. I did well when others didn`t and I`m going to say that they are very grateful.

We have a wonderful relationship, 15-year wonderful relationship. That -- what happens is I happen to earn one-fifth of the profits.


RAY DALIO: So then --

CHARLIE ROSE: You make 20 percent.

RAY DALIO: Ok, I earn 20 percent of the profits.


CHARLIE ROSE: And you take a two percent fee for doing it.

RAY DALIO: What -- yes that covers my overhead and a bit more.


RAY DALIO: But anyway, I earn this money as a result. Very similar to I would say, any of those companies you mentioned, the eBay and so on and so forth.


RAY DALIO: I pay about one-third in taxes. I pay about one -- I give away about one-third. And I`m -- and that`s what I do and I follow the law. And if I`m doing something that is incorrect, that they think is incorrect I`d like to know that and I would also like to say should those laws -- is that right or wrong.

CHARLIE ROSE: You want the people who work for you to tell you exactly what they believe and to be able to document the fact that it`s not just what they believe but it`s what they have discovered.

And you have to test those ideas in the marketplace of your own firm before you go off and act on those assumptions, correct?


CHARLIE ROSE: So what is it telling you now if Greece defaults? And that has a contagion ability to leap across the Atlantic and have some influence on the U.S. economy. What is it telling you, you know, about whether China, for example can maintain the level of economic growth it`s had and avoid the kind of social conflicts that might exist in that society.

What does it tell you about emerging nations and what it is that -- what impact they will have on commodity prices and what does it tell you about the future of the dollar as a currency? All of those kinds of issues?

RAY DALIO: You`ve got a bunch of questions.

CHARLIE ROSE: No. I know I did.


RAY DALIO: And also I`ll do the best I can.

CHARLIE ROSE: In my remaining minute. Go ahead.

RAY DALIO: Ok, I would want to say that there is -- there are two worlds. There`s debtor-developed countries and there`s emerging creditor countries, classically the United States and China.


RAY DALIO: One is a creditor, one a debtor. They are getting we`re still borrowing, we`re still in debt, we`re still -- they`re still earning. Then those two worlds can be broken into two -- those that can print money and those that can`t print money.

So now when I`m giving you the total answer in my remaining minutes, Europe is -- can`t, a lot of it, can`t print money. Therefore it will have to deal with whether there`s a transfer of wealth, there`s a limit to that transfer of wealth.

And so we are going to deal with the question of whether they would print money or get the haircuts. I think they`ll do both.


RAY DALIO: When looking at China, China because they can`t raise interest rates because of their existing monetary policy, is that they can`t control credit growth in the normal ways that we control credit growth. So there`s a credit bubble emerging there and as -- in other words there`s a quality of lending and it`s bypassing the credit system.

And that`s something that the Chinese will need to get a control of because it`s a dangerous thing. And so that creates their risk. If I take then the United States we`re in a position in which there is this deleveraging. Deleveraging is risky so for example banks are leveraged about 12 to 15, 17 times.


RAY DALIO: 15 times is a round number it depends on the bank. They`re leveraged 15-1 and if they go down by one-fifteenth, we have a capital problem and we`re in a deleveraging. Those problems -- bank crisis that have existed every ten years normally we are -- we can have a problem.

We don`t have the ability to have the same effect of monetary policy as we did before because a central bank -- it can buy a bond. It can -- therefore buy the bond. It gives that money to somebody who sold the bond and they were going to buy something like a bond. They`re -- the -- the getting it in the hands of somebody who spends it on cars and houses who really owes probably too much in debt is not an easy thing to do for monetary policy. So monetary policy is not as effective and then we have this social tension.

So we should be able to -- there`s this downward pressure of the deleveraging. We should be able to grow at a rate that`s comparable to our income growth if we are -- if we keep orderly and we -- and we work this through and everything is orderly. That means something between like 1.5 percent or 2 percent we should be growing at maybe about the 2 percent vicinity.

The problem with the 2 percent vicinity is that the employment rate remains the same or can trend higher. That produces social pressures, that produces tension which itself means that you can have a situation analogous to that which is existing in Greece and more social pressure you create the more tension that is existing and emerging in various ways, not just a Wall Street piece. But it`s existing in Spain.


RAY DALIO: So if we can keep orderly and not argue with each other and not do disruptive things and we don`t go down ok and grow at that two percent you know maybe then it will be ok.

If we have disruption and we are not able to have a monetary policy and we can`t have fiscal stimulation and you have a problem of what do you do -- you can`t recapitalize the banks. I mean if you should happen to need to recapitalize the banks you can`t have a TARP program again.

CHARLIE ROSE: Politically not feasible.

RAY DALIO: Politically not feasible.

So you have to have a plan. You need to be thoughtful, I think, how do you create that plan and not only it`s a theoretical thing when I say how do you make a plan because you have to be able to have agreement to implement the plan. You can`t have people at odds.

As I say sometimes to policymakers my job is very -- is much easier than their job. My job is that I just have to pretty much anticipate what`s going to happen and be one step ahead. That`s not an easy job but it`s an easier job than policymakers who have to do that. They have to then find a solution for the bad stuff not happening. That`s not easy to find solutions and then even if they had solutions they have to get that solution through the political system. In which there`s -- there`s -- everybody`s saying that you can`t do that, whatever that is and everybody blaming each other.

CHARLIE ROSE: Are you optimistic or pessimistic?

RAY DALIO: I suppose I`m -- if I was -- I`m concerned. I think it`s a test of us. It`s a test of us in our society. It`s a test of us.

CHARLIE ROSE: On that note thank you for coming.

RAY DALIO: My pleasure, thank you for having me.

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CapitalistRock's picture

And that is exactly why you better save with gold instead of fiat paper.

paarsons's picture

I'm not too sure about your reasoning.

These psychopaths can keep the ball in the air for a long long time.

In the end, however, I still expect deflation to win out.

But what the fuck do I know?


CapitalistRock's picture

You are correct only if the expansion of the money supply is limited with something like gold. But it's. It. We have a fiat currency that is beng used to monetize the debt every day. That's what you are doing by keeping interest rates artificially low, paying banks interest on excess reserves with printed money, and buying bonds to expand the fed's balance sheet.

Measured in gold we are in a pretty wicked deflation. If you meant deflation of the economy and not the currency, then you are correct. Measured in dollars we will experience inflation in the years ahead.

Harlequin001's picture

The problem with the system is that the system just doesn't work. We've reached this impasse now because of the currency pegging policies of Asia's central banks throughout late nineties and the earlier part of this decade.

When you have a currency peg you prevent a currency from falling thereby reducing the impact of inflation, which subsequently removes the need for increasing wages. If wages can't increase then you have a finite sum with which you can make repayments. Hit that and everyone stops borrowing regardless of stimulus.

Ain't no way now this 'dead horse' of an economy is getting up and walking. Bush, Snow and Greenspan saw to that...

narnia's picture

the balance of trade with countries with a currency peg are just a small part of a much bigger problem.  

the decades of promises built on terribly manipulated & flawed pricing of substantially less valueable assets are not capable of being deleveraged orderly.  it's hopeless.  eventually people will give up on ignoring reality, recognize the promises for what they are & the confidence game will be up.   

spontaneous order is part of our nature & biology.  we will survive this shock & be better because of it.

Harlequin001's picture

many of us won't, but I fear you have missed the point. Credit only workd whilst it is expanding. When it stops its unwinding is total unless you can spur it with more credit through lower rates. The currency pegs put a lid on rising wages which is the only way you can make ever increasing payments on ever more credit.

Now that borrowers are tapped out the unwind will be total.

spiral_eyes's picture

No more tools in the toolkit?

Tell that to Benny. He's nothing if not daring — and he will try every permutation of Keynesian market manipulation in the universe, starting with QEing the S&P and Russell and killing interest on excess reserves, continuing with dumping painted tungsten bars onto the open market to reduce y-o-y gold yields ("QE Gold") and concluding with heading the Global Reserve and introducing a new global currency.

Bitchez need to study more Keynesian economics, to get a handle on the true extent of the print-money-create-wealth bullshit parade.

bernorange's picture

Jim Rickards also warned over the weekend that he sees a very high risk of a dollar collapse.  Karl Denninger wrote recently a rant that included a little back of the envelope math giving the US roughly 6 years before full economic doom.

JW n FL's picture



Ray is scared shitless.. and with good reason.. We are Coming for him and you both, you bunch of fucking spineless, greedy cowards! Your day has come!!

Selling debt offshore so that you can pretend that really is owed somewhere else and that is why "We the People" must suffer?

FUCK THAT!! You scum have NO FUCKING PROBLEM Printing Money out of thin air for Yourselves!

SO! Start Printing out of thin air for "US"! "We the People" that provide the work product that secures your quality of life deserve.. We deserve to be treated well if for no other fact than we have treated YOU! well.

The Short Sighted Quarterly Bonus Craze!

America's Addiction to Sweet Light Crude! (when the majority left in the World is Heavy Sour and prohibitively expensive to drill for and refine! and damn sure isnt $50 a bbl)

The exodus of Manufacturing Jobs and thusly the Exodus of America's Tax Base (the tax base that really pays taxes, not the 30% tax base that has so many loop holes a blind man could easily only pay 5% instead of the 30% that is sung about by ALL!)

Change comes from within, change comes when the blanket of ignorance is lifted to reveal the factual nature of the Robbery that has been occurring over and over and FUCKING OVER AGAIN for the last 5 or 6 decades!

Dont forget to call your Lobby Group! because this change is coming.. and if not the Tea Party or Occupy Wall Street.. then some other new, better, non-co-opted group of regular people will educate enough of their fellow sheep! to ensure that the change does take root, that it does have the traction needed to run over the status quo!

ALL of You that would like nothing more than to enjoy the spoils of your participation in the Grande' Scheme of Corruption will be sadly disappointed in your inability to find a safe haven..

The Truth is Coming..

It only takes one small candle to break the darkness..

You had your time of Greed, You had your time of spreading Hunger and Hate.. You had your time to shine in the sun.... and you wasted it, on yourselves.



narnia's picture

it's just one of many factors.  other factors include the public sector growth putting a squeeze on the private sector, the regulatory/tax/compliance scheme, the $ reserve status, bubble subsidies, etc.

the credit underneath this currency bubble has expanded to match the direct & indirect taxation to finance this death star, which has no value.   

improvment in quality of life for people has just as much to do with the output they need & want costing less as a higher wage.  

WarriorClass's picture

Herman Cain was head of the Kansas City Federal Reserve. He is a bankster that was all for TARP and theft of Americans for his Bankster friends. He also denied there was a housing bubble and economic collapse until 2008, so on top of being a theiving bankster, he is an idiot as well.
See for yourself:


Cain is an idiot.

Yen Cross's picture

 The Emhpasis  is appreciated.  That long ass post was an " EULOGY" , Quit wasting my time!!

Oracle of Kypseli's picture

This long discussion about being able to bring all the planets in aligment, bring all politicians into a civil and honest debate, expect all the other parts of the equation to behave accordingly and avoid black swans for the next ten years, so that you can muddle through just like Japan, can be summarized with one word. "Impossible."

There will be pain.

Collapse is inevitable.

Yes! Government can keep the juggling balls in the air for long time, but the number of balls that must be juggled is increasing exponentially. The proverbial flight of that butterfly on the other side of the earth will eventually upset the balance.

Buy gold, silver, farms, food, water, seeds, guns and ammo. However, it's important to know that you do not wish for anything to happen just because you are prepared. Hope that you would never have to use them.

In the meanwhile, enjoy life as much as you can and teach your children to by self sufficient (his advice in the interview).


disabledvet's picture

I'm still trying to figure out if anything of any substance was said. Not that i don't want to be accused by someone in the hedge fund community...LET ALONE THE MEDIA...of "talking behind someone's back" (?)....anywho this says to me "we're retarded speculators too...but we happen to make tons of money at it." To me the "news" on this front was watching billionaires being forced into Chapter 7 liquidation as reported on in the Wall Street Journal. The key phrase that i took away is "financialization" and (what was left unsaid) how this relates to public finance. The fact of the matter is no government can make rational predictions of any future if the financial classes are one year worth a billion dollars and literally the next are flat broke and flipping burgers at McDonalds. Stay long energy, the war machine and patriotism. Everything else dies since "all debts are extinguished upon death." Unless of course you're a bank. Doesn't anyone else find this odd? The only debts that aren't extinguished upon death are the banks'? Happy trading!

Snidley Whipsnae's picture

disabledvet, et al... "I'm still trying to figure out if anything of any substance was said."

One of the first points that Dalio touched on was the aspect of the modern economy that causes machines to replace humans in the workplace...and, that in the 'new economy' that many people simply will not find jobs because their jobs are being performed by new machines.

Too little time was spent on this subject... mostly because Charlie Rose is a ego maniac that loves the sound of his own voice and continously talks over whoever he is interviewing... I read the transcript rather than subject myself to Rose's painful audio interview.

Too little time was given to 'machines vs humans' in the workplace for another good reason, as Dalio pointed out in so many words: This is a paradox! Capitalism requires competition, competition means whoever gets the best finished product out the door for the least amount of expenditure wins the game! Voila... machines do it for less on the assembly line. Example: An auto assembly plant that once required 5,000 - 10,000 laborers now requires 400 -800 workers. Think about what that means when multiplied across all manufacturing processes and, eventually, across the world. Eventually, China, India, etc, will face the same problem only they will have billions of excess laborers instead of millions, as in the West.

I have read considerable material concerning Dalio. He runs his firm exactly as he described and requires all his top people to do complete research of all their propositions prior to putting forward thoughts in company meetings. He also requires each employee to describe the limitis of the 'knowable' in their presentation. His meeting are candid and he advises all to leave their egos at the door. The thin skinned need not enter.

Like it or not, we are entering a new age where much less manufacturing labor will be required. Of course, the service industries will still require labor but, one day, even Mac a Doo will have machines preparing and assembling burgers.

I'm not a Marxist (hell, even Marx claimed he wasn't a Marxist) but Marx did point out that the machine vs human labor problem would arise. It's here and it's going to get worse for laborers.

So, what to do with billions of excess laborers? The worlds politicians/bankers can't even decide if some bank bonds need haircuts... How will they ever approach the decision about excess labor? More food stamps, unemployment compensation, etc?

pvzh's picture

How will they ever approach the decision about excess labor? More food stamps, unemployment compensation, etc?

That is easy. All that you described, plus couple it with sterilizations, legalization of drugs, wars, infections (persuade people that vaccines are bad for them "unnatural", poisonous, etc.), etc. The same old stuff "tried and true".

Alex Kintner's picture

I agree 100%. And Automation becomes a feedback system for ensured decline. People thrown out of work replaced by automation cannot buy goods. Thus, the need to produce fewer goods and a shrinking marketplace. Thus more job losses. Iterate the cycle until food riots begin. 

I know a guy who maintains Automation machinery that produces plastic bottles. He makes $10/hour and it's actually a fairly skilled job. Even those who maintain a job will have to live on a poverty wage.

pvzh's picture

"People thrown out of work replaced by automation cannot buy goods.", but machines needs other "goods". It is very painful economic readjustment similar to industrial and agricultural revolution. Decrease in labour demand make it cheaper, so it can be employed for some other uses later.

Machines in themselves are not a problem. Peak easy energy is the problem because it will come down to what is "easier" and "cheaper" to use labourer or machine. If no new energy source comes online reasonably quickly, labourers will "win". There would be plenty of work tiling fields, towing stuff to a nearest town, making chains and whips. Well, at least everybody (the ones who make it) will be "fed" and "employed".

jonan's picture

god help us the day that 100% employment is a requirement for the survival of the human race...

jonan's picture

aren't jobs created by the companies who create the machines which automate? or am i missing something here?

MachoMan's picture

Are we certain that this automation vs. human labor is necessarily true across all manufacturing and all time?  It seems to me that we could very well get in a situation where labor was cheaper than machinery maintenance...  whether this be from energy constraints, supply chain disruptions, etc.  Obviously this would take a different regulatory environment, but I forsee this type of regulatory environment in our near future (governments have to deleverage as well).

It's certainly played a key role in the last 30+ years (probably since the dawn of civilization, but there seems to have been some type of event horizon more recently in our past)...  there is no doubt that our present unemployment is at least in part structural and at least in part due to the efficiency of mechanization.  But is this a trend where we just take the ruler out and draw a straight line down?  No whipback?  No normalization?  No protest against mechanization?  Seems like the theory may work in an all else equal sort of world, but I'm not sure we're there...

CrazyCooter's picture

The rationale, of deflation vs inflation, is which serves the .01% of the population the most?

Deflation means debt destruction and debt is the very core of the wealthy, thus it can not be destroyed. Debt is synonymous with wealth, at least for the .01%.

Please debate your counter point.



fonestar's picture

That is until the .1% realize infinite debt-mass in singularity at the epicenter of their (red) hole, resulting in a quantum explosion giving rise to a new (logical) universe.

And then everyone just realizes that those crazy Austrians and goldbugs weren't so crazy after all.  Everyone lives happily ever after.



fonestar's picture

Yeah monetary deflation for sure!  I mean, if they don't stop the purchasing power of my dollars from rising pretty soon I'm gonna buy up everything in sight!



DormRoom's picture

there is no shelter.


He talks about deleveraging, and alluded to the Triffin Dilemma (China-US imbalances), but doesn't discuss flows. The US is in a Keynesian liquidity trap ("no more tools in the toolkit"). 


So the only safe places are assets/deposits in emerging-creditor nations.  But if everyone buys up those assets up all @ once (flow), and given their is only a finite number of assets, you'll have  massive currency inflows, which will stoke hyperinflation in those creditor nations. And those economies will blow up.


But if investors shift to commodities (primarily food/energy) as a safe haven, all at once, you'll get hyper-stagflation, as input cost inflation erode productivity, and producers are forced to reduce labour, when output drops, to maintain margins--if that.  Moreover structurally higher  food/energy cost will erode disposable income from labour, dragging demand.

If everyone moves away from the USD as the reserve currency (which they are/will), and looks for another store of value, the flows out of USD will break all economies.


The flows out USD will likely be faster than asset price discovery, as values are likely arbitrarily adjusted ,  so price will be very volatile, undermining confidence, until an anchor is agreed upon, by those socieites that haven't collapsed in the interim.


world governments are trying to manage panic-response, which will force agents to act all at once.  And it's this herd flight response, that they fear, especially out of USD, EURO, and YEN.


The new normal: hyperstagflation in developed-debtors nations. hyper-inflation in emergin-creditor nations.  The long run is here, for those who started the debt bubble in the 80s. 


Or a great depression will purge prices, and correct misallocation of capital that have been distorted by bubbles, and debt.



CrazyCooter's picture

Dalio is a douche bag. I am not sure debating anything he has to say will yield intellectual gains.

Just point and mock like the rest of us.



Harlequin001's picture

He's talking his book. Clearly he wants a solution that doesn't impact him or his fund.

Pay 3% more tax; who's he kidding? Try telling that to someone on food stamps.

Perhaps he would be good enough to tell us what happens to the wider economy if people spend 3% less and why this is a better option to default, which makes the bonds in his hedge fund near worthless...

History will record that none of these so called fund managers ever 'made' any money, that they simply sat on other people's assets whilst Greenspan et al simply devalued currency...

wang's picture

 two self-indulgent mofos -


CHARLIE ROSE: Failure teaches you more than success?

RAY DALIO: Of course. One of my favorite books is "Einstein`s Mistakes."

CHARLIE ROSE: Right. And because it showed you that even Einstein, the most brilliant person of the century in common judgment made mistakes?

RAY DALIO: The great fallacy of all -- I think of all of mankind practically -- I mean that`s a big statement -- but the great fallacy is that people know more than what they do and there`s a discovery process and so when you look at -- that`s the process for learning.

The process for learning is to say "I don`t know." Like, I`m -- I`m totally comfortable being incompetent. If I -- if I -- I like being incompetent. I don`t mind being an incompetent. If I don`t -- how -- how much can you be competent about?

And so that whole notion of do you like learning? Do you like finding out what`s true and building on it without an ego? And that becomes the problem. How many statements do you listen to people that begin "I think this, I think that," where they should be asking "I wonder."

ElvisDog's picture

Couldn't agree more. How is Dalio any different from Buffett? Another rich, liberal dickwad who has no connection with how the unwashed masses live. He's got his pile of money, and now he wants to sit on high and pontificate to the little people on how we should all just gather together in a room and work things out. His admiration for the U.S. Dept. of Education is a big tell on who he really is - another Soros-Buffett type wealthy statist that talks on one side of his mouth about giving more than half his money away while at the same time continuing to rake in billions of dollars from his financial engineering.

lewy14's picture

Cooter, I agree Ray comes across as a db - I've heard smart things from him; this interview was not one of them.

That said, I don't think DormRoom was debating him, but adding substance. Which I for one found informative. (Suspiciously, because it confirmed my own thinking. Damn confirmation bias.)

Charlie Rose was aiming to extract his libdem talking points from Dalio and succeeded by playing to his vanity. 

Snidley Whipsnae's picture

Charlie Rose is an azz hat and could make even Einstein look bad.

Read the transcript... Avoid all Rose audio/video interviews.

Dalio is an extremely intelligent fund manager and is doing the best he can IN THE ENVIRONMENT THAT HE WAS BORN INTO.

Dalio didn't create the Fed and central banks but he does realize how much they have distorted the world economy.

hack3434's picture

Hugo Salina Price has a  clever solution for that "cash flow imblance" (read stupid money bidding up everything to the stratosphere).


Oracle of Kypseli's picture

If the silver coin solution as described is adopted, is there enough silver there to satisfy both the industrial use and the money use? I doubt it. Especially if several nations adopt it.

pvzh's picture

is there enough silver there to satisfy both the industrial use and the money use?

It is not a question of amount of silver, but the price of silver. At $30 an ounce there is not enough silver for anything, but at $3000 an ounce. There will be plenty for coins and justified industrial use (no more silver for clothes and solar panels for Canadian houses etc.).

akak's picture

Excellent response.

When discussing a market commodity, it is never sufficient to talk about "enough" in isolation --- one must also consider "at what price?"

devo's picture

The tool left is hyper-inflation. Can anyone address this? My feeling is the Fed will take this out on the middle class and working poor.




Big Slick's picture

There's absolutely no track record to suggest that the Fed would do such a thing! 

cranky-old-geezer's picture



Since you didn't indicate sarcasm I'll assume you really believe that.

What is 98% loss of purchasing power since 1913, and 1/3 loss of purchasing power since '08?  Inflation or hyperinflation?

No track record of the Fed doing hyperinflation?  Do you dirve a car down the road looking in the rear-view mirror? 

Not happened doesn't mean in can't happen.



Yen Cross's picture

 Cranky old Geezer... Take it from me..  A lot of businees goes on down there!  


    She should be thankfull for you! 

cranky-old-geezer's picture



If I had a she like that avatar, I'd be doing a lot less commenting here, and a lot more "he'n & she'n" as they say :)

topcallingtroll's picture

You would eventually get bored with it.

Over the last six months or so I have collected a small harem with a little extra on the side. I thought for sure I had ended my posting days on zero hedge and said my good byes.

It wasnt a month before I was back.

I am so fucked out I have actually been dreading weekends. I am getting older and they all expect me to perform instantly like a young guy. Mid forties may look mid thirties with botox and chemical peel, but I aint a spring chicken. You wanna upset a lady? They think it to be an insult if you cant get hard, especially if she knows you performed adequately the night before and that afternoon. I have to carry around cialis now cuz i just cant go two or three times a day.

You will get tired of puusy if you are drowning in it. And if you are a true zerohead you will ultimately get your priorities back in order.

ZH first.
Sex later if you still have enough time.

Calmyourself's picture

Life's a bitch, someones gotta do it..

MsCreant's picture

He was just thinking about 1 (one). Not a harem. Your advice may not apply.

Big Slick's picture

Apologies Geezer - I forgot to indicate the sarcasm.  (Where is that button again??)  Thanks for keeping me on my toes.  PS - I like the icon

CapitalistRock's picture

A dollar today buys what 2.5 cents did in 1913 when the fed was created. Prior to the creation of the fed annual inflation averaged just 0.5%.

So yes, the fed is very good at robbing your savings. That is exactly why the banks created a central bank.

cranky-old-geezer's picture



The tool left is hyper-inflation. Can anyone address this?

There's just not enough supply of credit at 1% interest in normal markets to keep funding $1.5 trillon deficit spending each year, so printing currency to buy some portion of that new debt is a foregone conclusion. 

Printing currency and buying government debt puts that currency right into the circulated money supply, expanding it relative to GDP.  That's Econ 101 textbook inflation.

At what point does inflation become hyperinflation?  10% annual?  15% annual?  20% annual? 30% annual?

We're running about 10% right now give or take.  That's the "on balance sheet" part.

The "off balance sheet" part (TALF, LSAP, currency swaps, foreign bank bailouts, IMF contributions, etc) is printed currency too, but usually not included in domestic money supply numbers because it's not considered to be in domestic circulation, but it's still out there floating around to one degree or another, boosting real world inflation by roughly 30%, yieling 13% net annual inflation in this case.

Again, at what point does it become hyperinflation? 

Everybody has their own view on that.  Some say 10%, some say 20%, some say 30%, some higher, some in between, like 15%.

CrazyCooter's picture

This guy (Dalio) is a douche bag. There are far more interesting people to think about with far more insightful opinions. He offers nothing useful, insightful, or just plain interesting.

Not saying points made are invalid, just don't frame them in terms of this corn hole.

Ralph Foster, at the tail end of his book, defined "national notes that became worthless in each decade" as 75% loss of purchasing power over ten years. As I get older, I respect this and accept losing 75% of my life savings as a "set back". It is a pretty long and sobering list.

Hyper-inflation, while serious, is kind of a side issue ... your paper holds value or it doesnt. If it doesn't then you better be able to protect yourself against loss, be it 3% a year (typical inflation) or 75% over ten years. If the US ran 10% a year inflation on a ZIRP policy, I would be completely fucking ruined despite my best efforts.

I am sure the Govt could afford a lot more debt in the process, but the cost is not worth it IMHO. But hey, I am just a citizen, right?



devo's picture

Thanks for the response. I was wondering if I was missing something here. The world isn't going to end because the central banks will just (hyper) inflate...essentially a hidden tax/bailout placed onto the working class. For this reason, I don't see Greece as an issue. The worse their debt, the higher global inflation. Greek debt is a working poor/middle class problem. At least that's how I see it. Just wanted to know if my view is cycnical or distorted.

Based on my own calculations of daily finances, I have inflation at about 20% right now. That includes hidden inflation, which in my observation is the most pervasive and insideous type we're seeing right now. Insideous because the average American doesn't realize their box of Cheerios is filled with a third more air or the box is an eight smaller. I notice. It's bad. I'm paying for Greece with every box I purchase. My solution is to buy in bulk and use less of everything, even make some items from scratch. Eventually enough people will do that and corporate profits will fall off a cliff. That's the only way we see deleveraging--when the middle class speaks with their dollars and purchasing decisions.


cranky-old-geezer's picture



Ray's definition of deleveraging (which I don't quite agree with) is being forced on Main Street due to lower overall per capita salaries and wages across the economy from being in an economic depression (not recession).

Inflation (and resulting higher prices) is a separate issue technically.  For example you could have inflation and resulting higher prices in a growing economy, which incidentally is standard Fed monetary policy, slight inflation constantly, irrespective of growing or shrinking economy.  They call it "growth".  And it is in nominal terms but not in constant dollar terms or relative to gold for example.  It's false growth.  Fake growth.

All the so-called "growth" since 1980 has been this fake inflationary "growth".  The economy has actually been shrinking since 1980 in constant dollar terms as manufacturing slowly moves offshore and those high-wage union jobs disappear. Granted, I.T. sector and financial sector growth have offset some of that shrinkage, but not all of it.

Lower avg per capita salaries & wages in an economic depression combined with inflation and resulting higher prices puts a double squeeze on consumers, the ole 1 - 2 punch you might say.

That's what we're seeing now, as you mentioned.

And I agree, Greece really isn't an issue.  ECB could print till the cows come home, flooding Greece with a hundred trillion Euros. But it would collapse the Euro.  There's no free lunch.

Seems to me Greece is more about not triggering derivative payouts, which would blow the entire EZ ponzi scheme apart.

devo's picture

What is ironic is that you'd think inflation would drop (i.e. deflation) if manufacturing was moving offshore. Maybe that's why the Fed purposely inflates. At least that is intuitive to me, since capacticy utilization plays a large roll in inflation and U.S. manufacturing capacity is lower. Capacity meaning, if factory x is at 100% and factory y is at 100% capacity and there is still demand, they can then raise prices to z degree and demand will not drop. This would cause inflation. But, a much more healthy inflation (than printing money) since it's likely coupled with (a) jobs and (b) wage inflation (at least theoretically). The poor would lose out in that scenario (though social programs could be better funded), but right now the poor and middle class both lose, and that is overall worse for society.

I agree that Greece is about not triggering derivatives. It's also about winning political votes and avoiding anarchy. The sheeple are mobilizing.