Friday, September 21, 2012

Ray Dalio Discusses Possible Downturn in US Economy

The odds of that [a significant downturn] are comparatively low but I worry about it because it's significant possibility. I described it as though, imagine you're on an airplane that's flying from here to Los Angeles, you're probably going to get there okay but if you hit an air pocket and meaning if the economy goes down, there's not an easy way to reverse it. Monetary policy is less effective because when you buy a bond, when the Fed makes a purchase, that has the effect of giving money to somebody who won't put that money into something like that bond. And that money does not easily go to people who spend it, that's a balance between monetary and fiscal policy and I worry about the policymakers getting that balance right ... other than that, I think the most likely situation is we will fly successfully from here to Los Angeles essentially but we have longer risks. You need a balance between austerity and sometimes debt restructurings, and monetization. If you have too much monetization, you're going to have an inflationary problem. you have too little stimulation, monetary and fiscal policy, you're going to have a depression ...  I would say that there are reasonable risks that it will not be managed well.

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