During a live interview with Barry Ritholtz for his “Masters In Business” podcast on Monday, Bridgewater Associates CEO – who has been on a seemingly never-ending media tour to promote his new free e-book “A Template For Understanding Big Debt Crises” – once again expounded upon his “1937” markets thesis: That is, his theory that the US economy increasingly resembles the late-cycle dynamic from the 1930s where equity prices topped out as the Federal Reserve tightened monetary policy. Like the 1930s, the global economy is awash and debt, and populist politicians gaining power and influence in the West.
But more interesting than Dalio’s retread of his calls for a recession to begin some time during the next two years, he also repeated a claim he first made back in September, which has been getting more attention since BlackRock CEO Larry Fink said something similar earlier this month: That the US dollar’s days as the dominant global reserve currency are numbered.
Echoing Fink’s claims, Dalio explained that widening US deficits will soon alienate foreign buyers of US Treasurys, sending yields soaring higher while causing the dollar to depreciate by as much as 30% (though at least the Fed would no longer have any trouble meeting its inflation target).
Bloomberg‘s Brian Chappatta reviewed Dalio’s remarks in a column published Monday, where he cited previous comments by the hedge fund billionaire where Dalio said the loss of the dollar’s reserve status would be America’s “worst nightmare.” Dalio believes other rivals to the dollar will emerge to take its place, but refused to speculate about which currencies they might be.
“The role of the U.S. dollar will diminish, and the returns on U.S. dollar-denominated debt will suffer,” he said. “Then I think you will see the emergence of other currencies,” though he declined to identify which ones, saying it was “too big a topic to get into.”
Regardless of whether a recession does materialize to tank markets – or if the Fed simply obeys the whims of President Trump by slashing rates and running back to the safety of QE4 – Dalio is certainly right about one thing.
Full article: Ray Dalio: Losing ‘Reserve Status’ Would Lead To 30% Drop In The Dollar (ZeroHedge)