Ray Dalio, the billionaire founder of the world’s largest hedge fund Bridgewater Associates, is warning that capitalism is going to have to undergo a change if it is to – once again – work well for most people instead of exacerbating inequality.
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In a post published on LinkedIn on Tuesday, Dalio pointed to a number of economic indicators – including low or negative interest rates – that have led to what he considers an unsustainable and broken system.
“Because the 'trickle-down' process of having money at the top trickle down to workers and others by improving their earnings and creditworthiness is not working, the system of making capitalism work well for most people is broken,” Dalio said.
The hedge fund manager noted that very low or negative interest rates are spurring lending to creditworthy individuals. However, investors are choosing to invest their cash rather than spend it, which means growth and inflation aren’t budging. Investors have so much cash they are even turning to invest in companies that don’t make profits, he said, which has been the case with a string of recent high-profile IPOs.
On the flip side, Dalio noted that people who lack money or creditworthiness are essentially unable to access capital.
“This set of circumstances is unsustainable and certainly can no longer be pushed as it has been pushed since 2008. That is why I believe that the world is approaching a big paradigm shift,” Dalio wrote.
Governments are also battling large deficits, while pension and health care liabilities are increasing. The latter circumstance, he says, will result in an escalation of the wealth gap battle as the government decides whether to cut benefits, raise taxes or print money to address it.
This is far from the first time Dalio has sounded the alarm bells about either the U.S. or the global economies. In May, for example, he said a shift toward an economic theory backed by New York Rep. Alexandria Ocasio-Cortez – modern monetary theory (MMT) – was “inevitable” as the Federal Reserve eventually looks to ease monetary policy when interest rates are zero percent. MMT refers to the idea that if a government controls its own currency, there is no need to worry about balancing the budget. Therefore the government, not the central bank, can control the economy through fiscal policies, like spending and taxing.
Dalio also said during an interview on FOX Business’ “WSJ at Large” earlier this year that the existence of capitalism could be at risk after a potential “detrimental” and “revolutionary” change.
“I’m a professional capitalist. And at the same time I think that many of the outcomes if it’s not working for the majority of people, it’s not successful,” he said.