American billionaire predicted when to wait for the next financial crisis

Hedge fund manager billionaire Ray Dalio predicted that the US economy will decline in two years.

Фото: Depositphotos

Since President Donald Trump’s tax cuts will begin to take effect in about 18 months, the combination of rising interest rates and rising pension and medical spending costs will put pressure on the budget. About this Dalio said in an interview with television channel Bloomberg.

“We have to sell a lot of Treasuries, and we, as Americans, won't be able to buy all those Treasuries,” he said. “The Federal Reserve will have to print more money to fill the deficit, it will have to monetize more, and this will lead to a depreciation in the value of the dollar.”

A currency can “easily” weaken by as much as 30 percent, creating a “dollar crisis,” he said, although the economic contraction will not be as dramatic or severe as it was after the financial crisis of the year.

“It will be more likely to be a dollar crisis than a debt crisis, and I think it will be more of a political and social crisis,” the billionaire added.

Dalio said that inequality in America would cause a stronger internal conflict than the collapse of 2008 of the year. In addition, politicians have fewer opportunities to respond, because interest rates are still historically low and because the rules limit their powers.

In his new book, A Template for Understanding Big Debt Crises (2018), Dalio tries to remind investors and policymakers that business cycles are inevitable. Ultimately, debt builds to unsustainable levels, defaults, and a downturn in the economy and financial markets. Attempting to support or stimulate demand late in the cycle, as the Trump administration did with tax cuts, only potentially worsens the inevitable.

How the government reacts to the debt crisis is more important than the nature of the crisis itself, Dalio writes.

It is important that policy makers have sufficient knowledge and authority. Misunderstanding of the situation and lack of power is a big problem than debts themselves.

In emerging markets, currencies are depreciating in Turkey and Argentina - where the lira has fallen 40 percent this year, while the peso has fallen 51 percent, two-thirds of the way there.

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