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Ray Dalio thinks the ability of central banks to reverse an economic downturn is coming to an end as the global economy enters what he says are the late stages of the long-term debt cycle.
“Interest rates get so low that lowering them enough to stimulate growth doesn't work well,” the billionaire founder of investment management firm Bridgewater Associates wrote in an essay published on LinkedIn on Wednesday.
Money printing and buying financial assets won't work either, Dalio said, as it doesn't produce adequate credit in the real economy and creates the need for large budget deficits and then their monetization.
Dalio says the last time similar forces were creating a similar dynamic was from 1935 to 1945.
“There is a lot to be learned by understanding the mechanics of what happened then,” he wrote.
U.S. President Donald Trump on Wednesday renewed criticism of the Federal Reserve, saying in a tweet that it had “no clue.” Earlier this month, he said the bank needed to cut rates by at least 100 basis points.
To contact the reporter on this story: Nathan Crooks in Miami at ncrooks@bloomberg.net
To contact the editor responsible for this story: Sebastian Tong at stong41@bloomberg.net
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