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Billionaire Ray Dalio Says the Dollars Has Entered its Last Phase


Billionaire Ray Dalio Says the Dollars Has Entered its Last Phase

An historic monetary event has occurred that marks the last phase of the fiat system with a return to hard money to be expected according to an analysis by Raymond Thomas Dalio, an American billionaire hedge fund manager serving as the co-chief investment officer of Bridgewater Associates since 1985. In a preview of his latest book, The Changing World Order, Dalio goes into some detail into describing the long term cycle of money. We’re all familiar with the short term cycle of boom and bust, circa every decade, but what makes this prognosis very interesting is it’s description of the semi long term cycle and then the very long term one. It all starts with gold, of course, the hard money with intrinsic value described as “the only financial asset that isn’t someone else’s liability,” besides bitcoin presumably. Meaning you don’t have to trust the other party, with even enemies able to exchange gold between each other in payment. A function currently served by the Bank for International Settlement which arranges the transfer of gold between central banks.

This gold system lasted until around the 1500s when Marco Polo came from China with paper money. This paper money initially was a claim on gold with the paper fully backed and a full representation of the metal. “Because carrying a lot of metal money around was risky and inconvenient, credible parties (which came to be known as banks, though they initially included all sorts of institutions that people trusted, such as temples in China) arose that would put the money in a safe place and issue paper claims on it. Soon people treated these paper ‘claims on money’ as if they were money themselves,” Dalio says, further adding: “However, the holders of the paper claims and the banks discover the wonders of credit and debt. They can lend these paper claims to the bank in exchange for an interest payment so they get interest. The banks that borrow it from them like it because they lend the money to others who pay a higher interest rate so the banks make a profit. And those who borrow the money from the bank like it because it gives them buying power that they didn’t have. And the whole society likes it because it leads asset prices and production to rise. Since everyone is happy with how things are going they do a lot of it.

Billionaire Ray Dalio Says the Dollars Has Entered its Last Phase

More lending and borrowing happens over and over again many times, there is a boom, and the quantity of the claims on the money (i.e., debt assets) rises relative to the amount of actual goods and services there are to buy. Trouble approaches when either there isn’t enough income to survive one’s debts or the amount of the claims (i.e., debt assets) that people are holding in the expectation that they can sell them to get money to buy goods and services increases faster than the amount of goods and services by an amount that makes the conversion from that debt asset (e.g., that bond) implausible. These two problems tend to come together.” These two problems tend to also come around 50 to 75 years, he says, when a somewhat fundamental change to the nature of money is required because: “When credit cycles reach their limit it is both the logical and the classic response for central governments and their central banks to create a lot of debt and print money that will be spent on goods, services, and investment assets to keep the economy moving.” If we go back to gold, at first it was somewhat organic. People would measure an ounce or whatever, and exchange it for goods or services. Gold so being an abstract unit of measurement of value with the quantity of that unit generally not changing. Emperors or kings “standardized” that unit of account by taking for themselves the power to mint gold coins to be used as a unit of account. This ability gave them the means of full taxation in arguably a very regressive manner where the poorest bear the highest tax burden as in addition to taking a percentage of crops or income, they would reduce the amount of gold in a gold coin, in effect increasing the quantity of the unit of account. The measurer of value therefore became changeable, rather than roughly fixed. Changeable in a way that took wealth from the population and gave it to the central government. The introduction of paper money, as far back as the first known banking system set up by the Knights Templars, introduced another party to the setting of the measurer of value. Read More...

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