"Economy Is About To COLLAPSE..." - Ray Dalio

[00:00:00] Speaker 1: If we don't cut the budget deficit down to 3% of GDP, which is now, it's now probably going to be about 6.5% of GDP. If we don't cut it there, we will have a heart attack. That's everything. In other words, money and debt. Money is debt. And debt is money. And what happens is if we don't deal with that, we're in very serious shape. Yes, we are likely to have an economic heart attack. It's $1 trillion is the interest bill, which is greater than the amount of money we're spending on defense, $1 trillion. And then because of expiring debt, we have to sell to replace that debt another $9 trillion. And then we have to borrow new money. So it's a lot of money. Please like and subscribe me. We have difficult fundamentals to deal with. Most all buying power comes from credit. Credit produces debt. If you don't earn enough money to pay back the debt, you're going to have a debt problem. And that's true for countries as a whole, but they can print money. So sometimes they print money to deal with the debt problem, but it still means the value of money goes down. You have inflation, you have a problem. We have that kind of problem. This is not a new situation. This is something that's built up over a generation of the credit market system. The capital market system is like the circulatory system in our bodies, because it brings nutrients, spending power to be able to then produce things. But if you let the debts build up, it's like plaque. And what happens with that is that plaque begins to squeeze out other spending and problems can occur. Okay. If we think of it like a doctor looking at a patient and I'm looking at the country, I would say, you've accumulated a lot of plaque and you are at risk. So this is the lay of the land. Okay. Now the question is, how is that handled? And the most important thing is that these issues, these difficult issues are handled well with people dealing well with each other rather than dealing badly. But it's like somebody has a disease. [00:02:31] Speaker 2: Are we going to have a heart attack? [00:02:32] Speaker 1: We are very exposed to a heart attack. If we don't cut the budget deficit down to three percent of GDP, which is now, it's now probably going to be about six and a half percent of GDP. If we don't cut it there, we will have a heart attack. And that looks like that's everything. In other words, money and debt, money is debt and debt is money. What happens is if we don't deal with that and get, we're in very serious shape, yes, we are likely to have a heart attack, an economic heart attack. And that looks like a depression? Here's how it would go. We have to sell a lot of debt. There's not enough buyers of the debt. And then the buyers are not adequately there. What happens? Either interest rates have to go up and constrict the demand, what you can sell, or the Federal Reserve has to come in and print money and buy all this debt, which is inflationary. In either case, it has the effect of reducing buying power. It produces one type of a problem or another type of a problem. The inflationary problem that we experienced before was because of all of the debt and money that was handed out. And so you can see a big version of that, something that could be worse than that, if this isn't handled well. And think about it, our buying power all around the world is very much connected to the value of our money. So this is a very, very big issue. Yes, you can have that kind of a problem. [00:04:12] Speaker 2: Yeah, because you talk about the 30s and you say you have this prescription for Washington. Take the 3% plan pledge that you mentioned. So cut, tax, and then invest. Are you more encouraged that they would [00:04:26] Speaker 1: get on board with that plan? I think that there's a real recognition of the circumstances. There may not be as much public discussion about how serious the situation is. But we have all of these coming together. We have the debt issue. We have the internal fight of how the countries run. Think about the budget cuts and how they're taking place. That's a two-edged sword. And think about the conflict internally. And it's coming with conflict externally. So they're being dealt with. But think of it like a patient that is not in good shape. You cannot change some of these things. You can only try to deal with them at their stage in the best possible way. But for so long, we were this patient [00:05:13] Speaker 2: and we kept giving morphine in the form of ZERP, zero interest rate policy. And people got really [00:05:19] Speaker 1: addicted to that. Of course. It's so much better. Like who doesn't like spending? You give credit. It's the paying back that's the problem. We are in an environment that's similar to zero interest rate that can be measured by how much debt is the government getting into? How much credit? We love credit. But we can't have it all the time. We can't have morphine all the time. I think the important thing to understand is the mechanics. By that I mean that it works the same for governments as it works for people with two different. One difference is the government can print money, but you don't increase wealth by printing money. You just lessen the value of money. So you make it easier to pay back, but you experience it through inflation. And the second difference is the government can take your money so they can tax you. Those are the differences, but it works the same for individuals. So yes, if you keep getting deeper and deeper into debt, you have debt payments problems. Yeah. It's one trillion dollars is the interest bill, which is greater than the amount of money we're spending on defense, one trillion dollars. And then because of expiring debt, we have to sell to replace that debt another nine trillion dollars. And then we have to borrow new money. So it's a lot of money. Do you have first and foremost enough money that you're good, that you know you're good? Once you have that, you can move on from that to do other things, to take more chances and so on to do that. You will have freedom and security. There is nothing more important than that because if you know what your worst case scenario is and you know you're good and you know your family's good, then you have peace of mind and you have power and then you can take risk. So the first thing I would say when I'm looking at investors or when I'm looking at people is know what that number is and then know how to build a diversified portfolio so that that operates well. I put out information on courses and things, but the most important thing I think is to be in that position. Once you were there, then have a second portfolio, have that first base portfolio that way, [00:07:52] Speaker 2: and then you go on to take risk. So you created the all-weather portfolio to help people do that. That's right. So once they get to a place where they want to start investing, this is a portfolio that has weathered storms over decades. Yes. And whether it goes up or down, [00:08:08] Speaker 1: you don't lose return in order to reduce risk. That's the most important thing. Because one of the great things about investing is what I call the holy grail of investing. The holy grail of investing means that you can reduce risk without reducing returns by knowing how to diversify well. In other words, if you take two equally good investments and they move differently, you will have the same return because they're equally good, but you will have less risk because they diversify each other. And my mantra is 10 to 15 good uncorrelated investments produces a risk reduction by almost five times. In other words, you can have the same return with one-fifth the risk. That's a mantra of investing. So my main point here, because it can get complicated as to how exactly you do that, is know your number, achieve that, have that well diversified, and be humble. Competing in the markets is more difficult than competing in the Olympics. You wouldn't think I'm going to go compete in the Olympics. It's a zero-sum game. In other words, in order for somebody to make a better return, somebody's going to have to have a worse return. So that's the challenge of active management, for example. And so you have to appreciate that with your humility. Take an asset class, any asset class, stocks, it regularly goes down 50 to 70 percent in real dollars. So the power of diversification is something that I want to convey. Please like and subscribe me.