Ray Dalio, Davos 2019: Next recession comment, explanation, fear

At this point, it has been all but accepted, that an economic recession will strike at some point before the end of 2020. And Ray Dalio is among those settled on this fate.

The foundation and co-director of Bridgewater Associates – the world's largest security fund – said so much during a recent panel in Davos.

There is well traveled territory for some fans of Dalio's punditry in recent months. He believes we are in the seventh or eighth earnings of a short-term debt cycle, which must be loosely disengaged.

But there are external forces that worry Dalio. The drivers that exist beyond what we usually want to combine with a recession. He refers in particular to political and social issues that currently complicate matters in the United States and abroad.

Dalio claims that when it comes time for the federal bank to go in and ease conditions again ̵[ads1]1; something it repeatedly does to stimulate growth after the crisis – all bets will be off.

"In the US, there will be a significant downturn in the current period," said Dalio on Tuesday during a panel discussion hosted by Maria Bartiromo of Fox Business. "The bigger issues are really related to the policies and economic policies associated with it."

At the root of Dalio's current vision is the enormous debt burden that US companies have accumulated over the past decade. It is a calculation that will come to light faster than later, as loan costs rise, and Dalio does not expect it to be pretty.

When conditions begin to move south, it may coincide with divisive political development and reinforce market struggle. With regard to this, Dalio referred to 70% income tax on the super-wealthy recently run by Alexandria Ocasio-Cortez, although he did not mention the politician by name. He highlighted it as an example of something that could stir up social strife and serve as a headwind for businesses.

When it comes to the United States to complain about its next financial hole, Dalio warns that the nation can be hit by history, at least in terms of price increases. In fact, the whole trial of him reminds of the era that surrounds the Great Depression.

"We have monetary policy constraints, which is our most valuable tool," Dalio said. "At the same time, we have greater political and social antagonism. That's why the next downturn in the economy worries me the most."

He went on: "There are many parallels between now and the late 1930s. From 1929 to 1932, we had a debt crisis – the interest rate hit zero. Then there was a lot of money printing and the purchase of financial assets brought the prices higher. also creates a polarity, a populism and a contradiction. "

Dalio is also very focused on China, and how to deal with the end of its own cycle, beyond what conditions will reverse the next major economic downturn in the United States.

Dalio simply believes that the emerging nation will be quite good in the long run, mainly because monetary policy is denominated in Chinese yuan.

"The debt is in its currency," said Dalio. "They can cope with that cycle, but it's a weakening there."

But a short-term debt crisis will still stick, he argues. If you want to do business in China, the enormous debt burden continues at some point, though eventually being trained.

"If you were to take a 2-, 3-, 4-year perspective, it would be a problem," he said. "I think the capital flows and what kind of balance of payments issue is going to be a factor in the years to come. But when you have a piece, it's something that makes the country healthier."