Ray Dalio sees monopoly money as the easiest way out of the debt crisis

“Printing money is the fastest, least understood and most common way to restructure debt,” Ray Dalio wrote in an appendix to the final chapter of his upcoming book on the Changing World Order Thursday. “It’s like playing Monopoly in a way where the banker can make more money and redistribute it to everyone when too many players go bankrupt and get angry.”

Billionaire investor and founder of Bridgewater Associates said printing money, compared to other tools policymakers can use like austerity, defaults and higher taxes, looks “good rather than bad” for most people.

“It is difficult to identify the aggrieved parties from whom the wealth has been taken to provide that financial wealth, and in most cases this increases the assets in the depreciating currency that people use to measure their wealth,” so it looks like people are getting richer, ”Dalio wrote. “You see these things happening now in response to announcements of large amounts of money and credit being sent by central governments and central banks.”

Not all devaluations are good, however, and Dalio says it’s important to be able to differentiate between beneficial and destructive devaluations and how they ultimately affect savers’ willingness to continue to hold wealth in a given reserve currency. .

Key quotes:

  • “You don’t hear anyone complaining about the creation of money and credit; in fact, you hear cries for a lot more with accusations that the government would be cheap and cruel if it didn’t provide more.

  • “Most people don’t pay enough attention to their currency risks. Most worry about the rise or fall in the value of their assets; they rarely worry about the rise or fall of their currency.

  • “In cases where debt relief facilitates the flow of this money and credit to corporate productivity and profits, an increase in real stock prices (i.e. the value of stocks after adjustment for inflation) occurs.

  • “As the central bank faces the choice of a) allowing real interest rates (i.e. the interest rate minus the inflation rate) to rise at the expense of the economy or b) to prevent real interest rates from rising by printing money and buying that cash and debt assets, they will choose the second path, which reinforces the bad returns of holding “cash.” And these debt assets. “

  • “The average annual return on holding interest-bearing currencies since 1850 was 1.2%, which was somewhat lower than the average real return on holding gold, which was 1.3%, although ‘there were huge differences in their returns at different time periods. and in various countries.

  • “After the devaluation, the results diverge considerably from case to case, a key variable being the economic and military strength that the country retained at the time of the devaluation, which had an impact on the willingness of savers to continue to hold their money there. . “

This article was provided by Bloomberg News.

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