Ray Dalio On Whether The Current "Hopeless, Mob-Rule Deleveraging " Can Lead To The Ascent Of Another "Hitler"

Tyler Durden's picture

Yesterday we presented the complete must watch Ray Dalio interview and transcript from his Charlie Rose appearance in which he explained how, in his increasingly skeptical view, we are now "out of ammunition" as there are "no more tools in the toolkit." Today, he layers on top of this rather bleak macroeconomic perspective some very disturbing observations, specifically, what the realization of the dead end situation facing monetary and discal authorities means when confronted with a violent (metaphorically) deleveraging, and a violent (quite literal) social mood. In an FT op-ed he writes; "We are in the midst of a deleveraging, we are nearly out of ammunition and we are at each other’s throats. Being in a deleveraging and nearly out of ammunition is a very difficult position to be in. But, being at each other’s throats is our biggest problem." Needless to say this won't be the first time we have found ourselves in such a predicament: one very vivid example from history beckons: "Frustrations increase, the established ways of doing things come under attack and frustrations over the ineffectiveness of government creates the perceived need for someone to gain control of the mess. Plato spoke of this dynamic. It was the reason Hitler was elected in 1933."

Does Dalio predict the advent of another "Hitler" - hardly... But the risks are there, especially since none of the banks have learned any lessons from the past, and no preventative measures have been taken to avoid a repeat of 2008, only this time the entire population is already on edge: "Mobs are at the doors of bankers and others in the financial system, screaming to politicians to put these people in jail while the vote-seeking politicians are fanning the flames rather than reminding people that the legal system is the way these people should be judged. Since banks are levered about 15 to 1, it doesn’t take much of a debt problem to cause them solvency problems, and since in deleveragings debt problems are big, there is significant risk banks will run out of equity again and the fury against them will intensify. For these reasons risks to the global banking system are much greater than normal."

This lucid explanation of reality from the biggest hedge fund manager in the world explains precisely why the status-quo coopted media continues to retrench itself in lies and propaganda: in attempting to avoid panic and the realization that the entire system is now hollow, the lies will literally continue until morale improves. Only this time it won't, because the people (at least those that wish to be), can and will be far more educated than ever before in history. And the fear that reality (and associated discontent) will spread like wildfire, is why the status quo continues to retrench day after day, terrified of what happens if it loses control over that last bastion of "stability" - the stock market, which explains the relentless drive against logic and reason, ever higher, to mask the complete collapse of reality's facade just behind the surface.

Unfortunately this inability to deal with the interplay of Dalio's three core forces: deleveraging - social frustrations - and a policy cul-de-sac, is precisely why we are and have been so pessimistic on the final resolution to the prevalent problems occupying modern society.

We wish we could share Dalio's optimism...

If we calm down and work together to properly manage this difficult situation – for example, if we can properly distribute both the austerity and the increased efforts that are required to manage our debt burdens – we can get through this deleveraging without great pain. If we can’t, we may experience an economic, social and political collapse.

...but unfortunately we can't. Only when it is far too late will the status quo finally deem it worthwhile to engage with the "99%" on an equal and equitable footing. By then, however, not even the Dow at 36,000 will give anyone any more illusions that things are even remotely "normal."

But then again, a violent end, and subsequent reset, is nothing new in history: every declining civilization has gone through the same terminal death rattle, only to result in a systematic rebirth. This time around it won't be any different.

From Ray Dalio, in the Financial Times:

Risk on the rise as political leaders give in to mob rule

We are in the midst of a deleveraging, we are nearly out of ammunition and we are at each other’s throats. Being in a deleveraging and nearly out of ammunition is a very difficult position to be in. But, being at each other’s throats is our biggest problem.

Our character and our political and social systems are now being tested in ways that have typically been tested in past deleveragings. In deleveragings bad economic conditions typically lead to emotional reactions, social and political fragmentation, poor decision-making and increased conflict. When this occurs in democracies, the checks and balance system, which is intended to yield the best decisions for the whole, can stand in the way of thoughtful leadership and lead to ineffective “mob” rule. This dynamic can lead to a self-reinforcing downward spiral.

Frustrations increase, the established ways of doing things come under attack and frustrations over the ineffectiveness of government creates the perceived need for someone to gain control of the mess. Plato spoke of this dynamic. It was the reason Hitler was elected in 1933.

In our opinion these types of risks are now emerging and should be taken into consideration when trying to figure out what may lie ahead. Rather than trying to resolve disagreements through thoughtful discourse, people are now trying to grab power to beat and suppress their opponents. Tensions between the rich and the poor, capitalists and socialists, those in and out of power and different factions in each group are now intensifying in a manner that is classic in deleveragings. Politicians who are fighting for power in a political year are fanning the flames and are increasingly willing to do risky things (like shutting down the government) in pursuit of their missions and popular support.

This growing populism will have important implications for monetary, fiscal and trade policies and will significantly increase risks of a markets downturn and a global depression.

Regarding monetary policy, the mob is at the gates of the Federal Reserve and wants to grab control while those on the inside are in disagreement about what should be done. Fed chairman Ben Bernanke and those who helped him save the country from depression are now under siege. These challenges are being faced in different forms by most central banks at the same time as they are nearly out of ammunition – i.e., their capacities to ease are very limited because they cannot stimulate private credit creation and because they cannot get money in the hands of people who will spend it. For these reasons there is greater risk that central banks cannot save us as they have always saved us in the past.

The battle between the left that wants to tax the rich more and the right that wants to cut entitlement spending is at a fierce stalemate that is likely to intensify in more scary ways. As a result, fiscal policy is unlikely to be supportive to economic growth.

With high unemployment and growing anger, the “mob” is blaming the foreigners who “took their jobs,” especially the Chinese who they say are “manipulating” their currency to “compete unfairly”. And since politicians want popular support, they are navigating this issue to gain political benefit (e.g., to put the US President in the position of having to choose between the political suicide of vetoing Senator Charles Schumer’s currency bill and clashing with China) rather than to approach this difficult issue calmly and analytically. Trade flows and capital flows are increasingly being looked at by all sides as possible weapons in an economic war. As a result, the risks of bad surprises in trade and capital flows are heightened.

Mobs are at the doors of bankers and others in the financial system, screaming to politicians to put these people in jail while the vote-seeking politicians are fanning the flames rather than reminding people that the legal system is the way these people should be judged. Since banks are levered about 15 to 1, it doesn’t take much of a debt problem to cause them solvency problems, and since in deleveragings debt problems are big, there is significant risk banks will run out of equity again and the fury against them will intensify. For these reasons risks to the global banking system are much greater than normal.

While we hope that most people and their leaders will approach these difficult challenges calmly and collectively, we would not be meeting our fiduciary responsibilities if we bet on this happening without clear evidence of it. We are not alone in having and expressing our concerns in what has come to be known as “risk-on” and “risk-off” market movements.

If we calm down and work together to properly manage this difficult situation – for example, if we can properly distribute both the austerity and the increased efforts that are required to manage our debt burdens – we can get through this deleveraging without great pain. If we can’t, we may experience an economic, social and political collapse.

Ray Dalio is founder of Bridgewater Associates

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Robot Traders Mom Mom's picture

Or worse it could lead to another Robot Trader.

High Plains Drifter's picture

i had almost forgotten about chinese solar stocks...

anynonmous's picture

f  all of the above emeffers

Robot and Leo were here before any of you could effing spell Zero Hedge

F right OFF - I hear Henry is looking for shallow clueless readers

ZH was a much better place without you scum

 

Project Mayhem

MN Nice

Cheeky Bastard

oh those were the days

 

F off emeffer nouveau ZHers

Hook Line and Sphincter's picture

sometimes I too will break out my kneepads

High Plains Drifter's picture

excuse me sir, but i was here from about the beginning myself, but of course i did not use hpd then. i was anonymous when they allowed anonymous posting on zerohedge blogspot before td changed over to this format......now granted i took a while to join and for the most part during several months, i just read around here but one day i decided to join the foray....... whatever though. you believe what you want. i don't care...

anynonmous's picture

now granted i took a while to join

a while??? what are you an isotope who who speaks in terms of a half life? Robot has his critics and a few (used to be more) fans, but the effer isn`t even here and you dogs pile on  -and Leo was cut off at the knees (self inflicted, granted) but he put his real name out there, how about you Clint?   This is Fight Club not some backwoods trailer trash  community of basement dwelling losers.

Snidley Whipsnae's picture

anon... No one died and left you in charge... regardless of what Robo and Reggie told you.

If you want to be a board monitor why not send an email to Tyler?

AldousHuxley's picture

Hopeless, bankster-rule hyper leveraging on toxic assets can lead to the ascent of another Hitler after market forces upon deleveraging reality.

eureka's picture

BANKSTER/CORRUPT DC = MAFIA = MOB

mcguire's picture

yes... WHY NO MENTION AT ZH ABOUT THE VATICAN TODAY???  i thought this was huge, tremendous news... 

http://www.huffingtonpost.com/2011/10/24/vatican-economic-reform-radical...

 


The Vatican rules over approximately 2 billion of the world’s 6.1 billion people. The colossal wealth of the Vatican includes enormous investments with the Rothschild’s in Britain, France, and the USA, and with giant oil and weapons corporations like Shell and General Electric. The Vatican solid gold bullion worth billions, is stored with the Rothschild controlled Bank of England and the US Federal Reserve Bank.


The Catholic church is the biggest financial power, wealth accumulator, and property owner in existence. Possessing more material wealth than any bank, corporation, giant trust, or government anywhere on the globe. The Pope, who is the visible ruler of this colossal global wealth is one of the richest men on Earth. While two-thirds of the world earns less than two dollars a day, and one-fifth of the world is under fed or starving to death, the Vatican hordes the world’s wealth, profits from it on the stock market, and at the same time preached about giving.

 

mcguire's picture

here is the link to the full statement put out by the vatican today..  

http://www.radiovaticana.org/EN1/Articolo.asp?c=531752

wow.

AldousHuxley's picture

Audit the vatican. Tax them equally as much as innovative companies that improve the human quality of life.

i-dog's picture

"WHY NO MENTION AT ZH ABOUT THE VATICAN TODAY???"

Good question. Maybe for the same reason that famous and very vocal anti-globalist Alex Jones' Infowars.com just posted it in press release style, with no comment! Maybe they're wating for instructions on how to handle it?

mcguire's picture

yeah, the press release has NWO all over it.. i was also surprised by AJ "relative silence" on the issue.. 

"In a world on its way to rapid globalization, the reference to a world Authority becomes the only horizon compatible with the new realities of our time and the needs of humankind. However, it should not be forgotten that this development, given wounded human nature, will not come about without anguish and suffering."

yikes!  notice how they capitalize Authority..


"The Pope is of so great dignity, and so exalted that he is not a mere man, but as it were God. and the vicar of God." -Ferraris Ecclesiastical dictionary 

i-dog's picture

Alex Jones is a gatekeeper for the Vatican through the "religious" right. Most of his regular guests have very strong links to the Vatican agenda (eg. Paul Craig Roberts, Steve Piecznik, Joel Skousen, Larry Pratt, Ted Anderson). AJ's sister attends a Jesuit university and AJ has given talks there. Sadly, he is not what he seems....

With this action today, he has effectively blown his cover. I'm going to be very interested in seeing how each of the so-called "alternative" media handles this story. :)

Crime of the Century's picture

Alex Jones is a gatekeeper for the Vatican through the "religious" right. Most of his regular guests have very strong links to the Vatican agenda (eg. Paul Craig Roberts, Steve Piecznik, Joel Skousen, Larry Pratt, Ted Anderson).

That just may be the most off-the-wall statement I have read on ZH in ages. Reread your above sentence for comprehension, and identify the exhibited cognative dissonance. Most of his "regular guests" are complete unknowns to the "religious" right, whoever that is in the fever swamp of your mind. Jones panders to far left end of the libertarian spectrum.

i-dog's picture

LOL! I'm basing my opinion on research ... you're basing your opinion on popular meme (or wishful thinking). Whatever.

BigJim's picture

Whenever I see the latest pope, I get this mental soundtrack:

http://www.youtube.com/watch?v=L6W6Agqujpw

OldPhart's picture

"The Vatican rules over approximately 2 billion of the world’s 6.1 billion people."

Rules?  They're advisors, not rulers, to the majority of the 2 billion.  And many take the advice with a grain of reality.

And as far as having their gold stored at the reserve banks...hope they kept a detailed receipt.

AldousHuxley's picture

2000 years of ponzinomics. That's heck a lot of time for compounded interest and prime real estate valuation. And they don't even pay tax!

 

Best brainwashing ever invented and all they sell is some heaven concept that you get AFTER death for 10%  of your income.

 

Theocracy maybe dead, but their wealth is still around.

anynonmous's picture

Snotely says

anon... No one died and left you in charge.

 

WTF  - I expressed an opinion about a bunch of wimps taking gratuitous shots. Would you suggest it`s better to join the mob and pile on?  Ahh yes nothing like status quo -- let me check my closet to see if I have a brown shirt. 

LetThemEatRand's picture

Arguing with a narcissist (right wing, Ayn Rand follower) is like telling a dog that it is wrong to lick his balls in public.  The dog will look at you while you are talking and seem to be listening, but the ball licking will eventually continue.

AldousHuxley's picture

Ayan Rand lived off of social security. She is a socialist acting like a capitalist just like wall st.

Zero Govt's picture

Anynonmous  -  i like your style. Defend the defencless. Defend Leo while admitting he "cut himself off at the knees". Defend Robot again knowing he was a losing trading pattern and only profiited in hindsight like he said he just had. You're like the socialist of the blogging boards, always looking out for the little guy (pea-brained losers)

Agreed they're not "here to defend themselves" much like Hitler, Stalin and Bernie Madoff. That's because the losers wimped off not because we left here are wimps. Don't check for a brown shirt, we can all see you're carrying the crusade for the losers (tossers) of history with your chest bare like 'Macho Man of the Also-Rans'

Love you kicking off firing blanks into your own foot.. that's the type of style we miss about Leo and you're a worthy calamity clown of a replacement   

erg's picture

Years before I ever arrived at ZH I posted under my full name. Why should I hide from obvious truths? I was proud to attach my name. I was naive.

You said it yourself, it's a fight club. If someone is being constantly cut-off at the knees, why would they return? Is it altruism or masochism?

buyingsterling's picture

I miss your garbled eastern european style blathering. Go back to that persona. If I have you confused with someone else, it's cause I'm a dreaded newbie. Wow, you were here from the start, BFD. How's your ZH stock doing? No vested interest? Thought so.

CompassionateFascist's picture

What we need is Compassionate Fascism.

I am a Man I am Forty's picture

length of time on the board doesn't mean jack shit, if Cheeky Bastard didn't show up until today his posts would still be great, it annoys the shit out of me when people actually think that the longer you've been on ZH it makes you some sort of fucking elder or something...LMFAO

 

Project Mayhem had great stuff too

anynonmous's picture

I am a Man I am... (let me guess) .... a mouse

a bunch of pussys taking cheapshots at deadmen or those who aren`t  here to respond, that`s the issue

(and I think it`s Clint who was all defensive about the tenure thing)

 

and no I am not modeerator nor do I presume to be, but of course it`s a lot more fun to kick `em when they`re down and god forbid someone challenge that

as I said...  losers

 

akak's picture

I hope leo is dying the prolonged and agonizing death that a ragingly narcissistic, sociopathic piece of shit such as him fully deserves.  He was and is as fully complicit, and therefore fully as guilty, of partaking in, enabling and apologizing for the massive, systemic fraud and corruption of the status-quo political, financial and monetary paradigm as those in power in Washington and Wall Street.  His many craven, cowardly, blinkered pro-Establishment rants attested to that fact, and I'll be damned if I am going to feign sympathy for such an arrogant and malicious bastard as leo merely because he is suffering from a disease (who here does NOT have their own crosses to bear in life, or suffer from medical conditions?  However, we are not constantly reminded of that from any other contributor or poster in the most shamelessly self-absorbed manner possible, as we were from leo).  His malady in no way exonerates him from his many mortal sins, and as far as I'm concerned, his death will never come soon enough.  leo was nothing but a sellout, a shill, a Quisling, a collaborator and a coward, and worse than that, he continually admonished the rest of us to sell out, give up and be the same.  He was not merely beneath contempt, he was beyond contempt, and I will piss on his grave with pleasure.

Fuck leo, and anyone who would stand up for such a criminal and apologist for evil.

Libertarians for Prosperity's picture

 

 

Wow!  That's some really intense hatred.  In fact, it's totally psychotic.  

Libertarians 2012: The Party for whacked-out, hateful, spiteful, bitter, paranoid, psychotic freaks. 

 

Zero Govt's picture

Libertarians leave others well alone ...its the socialists, fascists and monopolists (ie. parasites) that can't keep their filthy stinky fingers out of other peoples pockets ...how you doing with rationalising thieving pussface?

traderjoe's picture

Yes, those were the days. Except I can't remember you or anything I've ever learned from any of your comments. Ironic, huh?

And robot turned into a troll and Leo buried himself in Greek bonds and high-beta solar stocks while the rest of us canned spam in the basement crowd got 'smoked' owning physical gold and silver - or not.

Seriously, what value does your comment add?

Snidley Whipsnae's picture

traderjoe... "Leo buried himself in Greek bonds and high-beta solar stocks"

You left out the part where 'some nice guys took me (Leo) to lunch and explained what a great investment awaits in land that the nice guys developed in Argentina...'

I took him to the wood shed for that one... and would do it again.

anynonmous's picture

trader nice to see you again, remind me...

I don` t think I was responding to you but since you took the time; who made you the almighty  monitor?

 

robot turned troll you say- why because you disagree with him

douche

traderjoe's picture

Pot calling kettle black?

Whatever...ignore...

anynonmous's picture

great response

ignore --  why not just change your avatar to a bright yellow A

akak's picture

Did you swallow a whole bottle of Viagra today?

I ask because you appear to be a truly giant dick.

LongSoupLine's picture

Did you swallow a whole bottle of Viagra today?

I ask because you appear to be a truly giant dick.

LMAO...

buyingsterling's picture

Does 'American citizens' evil have anything to do with your bad mood? Go back to that shit, it was brilliant schtick.

B9K9's picture

I would suggest that Robot citizens are perhaps the greater threat.

I spent a glorious weekend in SF - except for some street people and a few misguided youths, it would be difficult to discern the presence of the OWS crew @ the Embarcadero amidst the carnival barkers and ready consumers all willing to buy, Buy, BUY!

Of course, it's all on borrowed funds, but apparently the citizenry has fully embraced "es, bibe, lude". Aren't they going to be surprised when price controls, rationing, and martial law are imposed so that the central state may able to de/re-value the $USD by about a factor of 10:1.

Actually, the surprise isn't that our modern Hitler hasn't yet appeared fully formed, it's that we've gone this long without any overt need to utilize such a figurehead. Thank our educational system, the MSM and of course TV for the continued passive & willing acceptance of the chains so that today's "solutions" don't have to be "messy".

Of course, one can only go so far before the necessary military & police powers are brought to bear. My take, and where I've been placing my chips, is going long on poverty. The People must be impoverished not only in the short-term to deal with defaulting the debt via (hyper)inflation, but also to condition them for a post-Hubbert world.

As I looked out over the City one evening, I could only help but think that it's been an awesome ride. Pity it has to end.

thefatasswilly's picture

And thus, my generation gets to eat shit. And people wonder why I'm so nihilistic. The idiots my age don't even realize the nice big brown piece of ass cake they're about to get stuffed in their mouths.

Fibz's picture

But it's a glorious sight to see ignorance punished.

Snidley Whipsnae's picture

"But it's a glorious sight to see ignorance punished."

ah...yes... and who put it better than this?...

In all life one should comfort the afflicted, but verily, also, one should afflict the comfortable, and especially when they are comfortably, contentedly, even happily wrong.
John Kenneth Galbraith

Read more: http://www.brainyquote.com/quotes/authors/j/john_kenneth_galbraith.html#ixzz1bkyDEP00