Decoding Why The World Has Gone Mad

Are we mid-cycle (like the Fed suggests) or are we at the end tip of our global economic cycle (like most analysts believe?).

Ray Dalio didn’t mince words (though it is poorly written as it is hard to read) in a post on LinkedIn about the paradox of free money in the global economy. Let's try to understand what the heck he is actually saying.

We have to listen to the Billionaires, isn't it?

Ray Dalio recently spelled his thesis on why the economy is broken in a (broken) LinkedIn post titled: “The World Has Gone Mad and the System Is Broken.” Yes, the world is going mad with tariff weaponization and crying Billionaires. Ok, Boomer!

Raymond Dalio is an American billionaire investor, hedge fund manager. Like any proper U.S. Billionaire, his wiki says he is also a philanthropist.

I believe Mr. Dalio is primarily worried about debt. CNBC summarizes it as such:

• Central banks have been handing out cheap money to investors who have been injecting it into companies that are often unprofitable and don’t contribute to the growth of the economy, he explains.
• Dalio also attacked the country’s ballooning debt and disproportionate access to credit, which is fueling the wealth gap.

The world may be on the cusp of a big “paradigm shift” as free money and huge government deficits become unsustainable, Ray Dalio, founder of Bridgewater Associates.

What would this paradigm shift be?

Here he is also pointing to a dishonest Wall Street where the 2019 IPO reckoning has created a sense where American bets in technology are no longer working like we once believed they would. Witness WeWork, Uber and an IPO group that has under-performed.

Because investors have so much money to invest and because of past success stories of stocks of revolutionary technology companies doing so well, more companies than at any time since the dot-com bubble don’t have to make profits or even have clear paths to making profits to sell their stock because they can instead sell their dreams to those investors who are flush with money and borrowing power. - Dalio

The rich get richer a lot faster and are drinking kool-aid, even as Wall Street consensus has put companies like WeWork and Uber in their rightful place, as cash-burning entities that might never truly be profitable.

It's not just investors though, the FAANG illness is real. Central banks have been giving cheap money to investors who have been injecting it into companies that are often unprofitable and don’t contribute to economic growth, says billionaire hedge fund manager Ray Dalio. This reminds me of a sort of investment debt bubble.

Masayoshi Son's error in judgment with WeWork and likely Uber, is a mirror of the entire world. The Softbank Vision Fund is gambling with $Billions of dollars.

Meanwhile, we are practically ignoring the national debt.

At the same time, large government deficits exist and will almost certainly increase substantially, which will require huge amounts of more debt to be sold by governments—amounts that cannot naturally be absorbed without driving up interest rates at a time when an interest rate rise would be devastating for markets and economies because the world is so leveraged long. - Dalio

As of June 2019, federal debt held by the public was $16.17 trillion and intragovernmental holdings were $5.86 trillion, for a total national debt of $22.03 trillion. Hey, but who's counting?

It's so lovely to read a Billionarrre who cares so much about wealth gaps. In addition to enormous amounts of cash flowing to investors at ultra-low rates, Dalio also attacked the nation’s ballooning debt and disproportionate access to credit, which is fueling the wealth gap. I'm getting so warm and fuzzy to read Dalio's summary of the situation.

Ballooning Healthcare Costs and Inverted Demographic Pyramids.

As a futurist, I've often warned about this coming reality.

At the same time, pension and healthcare liability payments will increasingly be coming due while many of those who are obligated to pay them don’t have enough money to meet their obligations. - Dalio

That truly is a new paradigm of aging populations, which will allow the corporate nation-states to make $Billions on healthcare, with the likes of Apple, Google, Amazon, and their Chinese counterparts getting into healthcare. That kind of centralization, won't help ease wealth gaps. With these companies having our health data, it will be very interesting.

• Unequal access to investment capital
• Tech hype bubble
• Ballooning national debt
• Coming healthcare cost crisis

Dalio puts the finger on a lot of relevant issues for America in the 2020s. Not so sunny I'd say. This doesn't just lead to inequality in wealth and opportunity, it leads to tech nations and Billionaires like Dalio owning the entire system more and more to the direct detriment of the middle class. But he only goes so far in his "essay".

• The demise of Pensions

That's not just crazy, that's the great uncertainty most of the American consumers will face in the coming decades. If your consumers have less confidence and poorer health (as Millennials do), what happens to your economy?

Since there isn’t enough money to fund these pension and healthcare obligations, there will likely be an ugly battle to determine how much of the gap will be bridged by 1) cutting benefits, 2) raising taxes, and 3) printing money (which would have to be done at the federal level and pass to those at the state level who need it). This will exacerbate the wealth gap battle. - Dalio

The Fed and the POTUS have a more direct influence on the Stock market and American economy than ever before with the weaponization of tariffs America has experienced with China in 2019.

CNBC notes that his post comes days after the Federal Reserve cut interest rates for a third time this year to buffer the U.S. against a slowing global economy and the ongoing U.S.-China trade war. The Fed calls us "mid-cycle", and one wonders what data they have access to that the rest of the world doesn't.

If Billionaire investor Ray Dalio thinks rationality in today’s economic environment is largely absent — and it’s only a matter of time before “a big paradigm shift” takes place. These macro trends that goes way beyond how central banks artificially prop up their economies. With capitalism not having its shine on for younger professionals, the 2020 political climate could be a disaster waiting to happen for the global economy.

• Wealth inequality, wealth gaps and the control of the 1% over all aspects of our society will increase in the 2020s and 2030s to unprecedented levels. This could ignite social unrest with the advent of technological automation. (Dalio doesn't go far enough with his thesis).

As a friendly Billionaire, he needs to talk professionally.

At the same time as money is essentially free for those who have money and creditworthiness, it is essentially unavailable to those who don’t have money and creditworthiness, which contributes to the rising wealth, opportunity, and political gaps. - Dalio

• Inequality in access to wealth might be destroying Capitalism from the inside. (Boomers are okay).
• A student debt crisis and rising costs of housing mean young professionals are at a significant disadvantage in a non-level playing field Capitalism in the 21st century. As much as 6-10% of the Middle class will churn from it with each generation from the year 2000, onwards.

This will likely create a scenario whereby 2050, for all intents and purposes global capitalism that's sustainable will be broken as consumer confidence will be invariably shaken in a permanent way. This could result in a significant revolution in our socio-economic paradigm likely in the 2060s.

These are events Dalio is unlikely to live to witness, but still, Andrew Yang has been talking to him it would appear.

Also contributing to these gaps are the technological advances that investors and the entrepreneurs that I previously mentioned are excited by in the ways I described, and that also replace workers with machines. - Dalio

• Impact of technological automation somewhat unclear on American capitalism.
• Retail, transportation, logistics, finance, healthcare, manufacturing, and fast-food industry are likely to face simultaneous labor market pressure from smart machines, robots and AI automation in the 2020s and 2030s.

Combined with a range of factors Dalio mentions and I have added to, there will indeed be a new paradigm for capitalism and global growth where there will be fewer winners and more losers.

Even in Dalio's dog-eat-dog world of investments that will be seen to be the case.

It's a lot more than just Capitalism that will be broken. [The Billionaire class are going to be just fine.]

When your expectation is economic growth at all human costs, it is indeed a kind of materialism and individualism extreme of insanity. It doesn't really matter what people like Dalio, Musk or anyone else says, this is something humanity will have to go through and it is near.

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

I cover macro-trends related to business, the economy and the future of technology. When you break what Dalio is pointing to and combine it with other salient trends you realize it's technology-forcing a new kind of capitalism. If done wrong, it will result in China replacing the United States in nearly every aspect of global leadership.