Ray Dalio Reveals Shocking New Predictions (Dollar Collapse!)

ray dalio reveals shocking new predictions that include the dollar collapse so i'm gonna explain this to you in three simple fast steps step number one let's start with money printing and of course in today's day and age 2020 it always seems to start with the fed's money printing and we're not going to get into the details as to whether or not the fed can create broad money m2 money supply chasing goods and services in the real economy we're going to stick with the basics and that's the fed creating bank reserves out of thin air to buy financial assets more specifically treasury so the fed comes in they print up all of this funny money literally by going to their computers and typing additional digits in the reserve accounts of the entities they're buying the treasuries from mostly primary dealer banks commercial banks sometimes hedge funds and financial institutions these hedge funds and financial institutions might not have reserve accounts in which case the transaction would go through their commercial bank but that's getting into the weeds a little too much for this video the bottom line is the fed creates bank reserves funny money goes into the treasury market and buys the treasuries from the banks to financial institutions and hedge funds so those treasuries go to the balance sheet of the fed they now own those treasuries they've created additional demand maybe even excess demand well we know if demand goes up then typically the price goes up as well and there's an inverse relationship between the price of a treasury and the yield or the interest rate so if price goes up the yield or the interest rate goes down and the yield is what you're being paid to own the specific treasury so theoretically the lower the yield goes the less attractive those treasuries are compared with other asset classes and to dive into this deeper let's go to a recent interview with bloomberg and ray dalio fiscal deficits and money printing we've already seen some of the impact at least some of the impact in financial markets of all the massive fiscal spending and all the massive monetary stimulus stock prices at record levels negative real yields on treasuries negative nominal yields on sovereign debt around the world where does it go from here ray well i i first i want to convey the mechanics of that when there's more you run a larger deficit and there's printing and buying of financial assets it drives down real yields and as a result of this it drives money into alternative assets um there's a supply demand problem for bonds but there when the central banks at the end of the day print and much the same as roosevelt did in march of 1933 that causes financial asset prices to rise and supports the economy but diminishes the value of debt the real value of debt now let's go over some charts that illustrate what ray was talking about we start with the fed's bs or their balance sheet going back to 2008 all the way to 2020. on the left we go from zero dollars over six trillion so before quantitative easing won in the gfc the fed's balance sheet was about 800 billion pretty consistent then we get to the gfc quantitative easing one it goes parabolic and keeps going up and up and up until it maxes out about 4.5 trillion it stays pretty consistent until we get to about 2018 where the fed tries qt or quantitative tightening the reverse process where they start to sell treasuries and mortgage-backed securities they continue this process all the way to september 2019 and you know what happened then that was the repo market debacle where interest rates went way up over 10 percent and the fed had to step in create more funny money more bank reserves to get those interest rates down so the entire system wouldn't collapse so their balance sheet goes up even though they're calling it not qe they said whatever you do don't call it qe but magically their balance sheet continued to go up and then we get the cerveza sickness it goes parabolic to now it's over 7 trillion and i've got your friend and family member fred here and of course he's holding a sign that says i love the fed and this is just to remind you that the mainstream media cnbc bloomberg pretty much everyone outside of the individuals like you who are smart enough to watch the george youtube channel think that the fed saved the day they think the fed's the firefighter where we know the fed is really the arsonist so let's go to the second chart and this is of the 10-year treasury going back to october 2019 all the way to august the interest rate zero up to two percent back in october 2019 we're humming right along about 1.5 gradually going up and then we have a decline when we start to get the news about the cerveza sickness when the fed comes in and starts qe infinity in march that's when interest rates drop off a cliff this would coincide with this chart and that's where the fed's balance sheet goes parabolic so again what's happening is the fed is coming in and buying treasuries and according to ray dalio that additional demand is making the price go up or the interest rate go down so we've got additional buying additional demand additional price interest rate goes down at the same time i want to be very clear this is how ray dalio sees it i'm explaining to you what he's talking about and it's really consistent with how the mainstream media describes it as well but it doesn't mean that it's totally accurate i don't want to get too far off on a tangent but i want to point out that my good buddy jeff snyder would say no that's not the way it works just because the fed comes in creates funny money to buy treasuries doesn't necessarily mean that the interest rates go down i don't want to put words in his mouth he's a heck of a lot smarter than i am but i would guess that jeff would point back to the repo spike in 2019 and say hey guys look the fed's balance sheet went up there and interest rates didn't collapse in fact they stayed steady and gradually went up so i don't want to go too far down that rabbit hole but i do want to make sure that everyone knows watching this video that i'm describing the world through ray dalio's eyes i'm not necessarily saying that's the way it is that's definitely an open debate but the main takeaway from step number one is the fed is coming in and creating additional bank reserves printing money in other words to buy treasuries and ray believes that creates additional demand for those treasuries which increases the price and lowers the interest rate and it makes this asset class a lot less attractive relative to equities or gold more on that in step number two step number two could the dollar lose its reserve currency status due to the process we discussed in step number one ray dalio says yes editor let's go right back to the bloomberg interview we're dealing with a situation like in the 30s that could be threatening even to the reserve currency status in any way it diminishes the value of the that which is being produced that means money and credit and it drives money into those other assets so it's that kind of market action is there a real threat right now to the us dollar's status as the world's reserve currency uh yes there is a there is a threat it's an evolutionary type of process there's not yet um a good alternative in the form of a currency per se but people are not investors big large institutional investors don't run out necessarily to alternative currency because the three major reserve currencies all have the same basic problem that's why they move into a new storehold of wealth and you see that the storehold of wealth like in 1933 reaction is equities is gold is other asset classes that go up so what ray dalio is reminding us that if you're the average joe or any entity that owns a 10-year treasury a 30-year treasury basically you're owning long-dated dollars that's right if you think about it you're just owning dollars for a long period of time and the government your drunk insolvent uncle sam more on him and step number three is just paying you an interest rate or a yield that's decreasing due to what the fed is doing by buying those treasuries creating excess demand and to raise point if you look around the world and try to find another safe haven asset you're not going to do it japan they have negative nominal interest rates you're not going to do it in europe they have negative nominal interest rates as well and you come to the united states it has positive nominal rates when you adjust for inflation their rates are negative as well so let's think this through going back to the chart of the 10-year treasury from 2019 to august of 2020 it started off about 1.5 percent when they came in and did qe infinity in march those interest rates went all the way down to about 0.5 but let's keep in mind that the fed has come out and explicitly said that they're trying to achieve two percent inflation if not higher so if you've got the bar set at two percent or higher and the interest rates are at point five percent you have a negative real rate in other words if the average joe buys that 10-year treasury and holds it to maturity they are guaranteed to lose money or as one of my favorites jim grant says you've got return free risk so the historic safe haven asset the 10-year treasury doesn't look so safe anymore so what do the investors do they might go into equities it has a little less inflation risk or i think you can read my mind they go right into gold so editor throw up a chart of equities and we can see that they have definitely gone up since march and quantitative easing infinity and gold as we all know has been going up even in 2019 but has gone almost parabolic since march of 2020 so in ray's opinion what's happening is the investors are looking at the 10-year treasury and saying listen no thanks the rate we're being paid to hold them is far below the target inflation rate of the fed and of course all of us would argue that this is even dramatically understated so when you've got inflation running higher than the interest rate you're being paid plus the fed is coming in increasing demand increasing price and then dropping those interest rates even further those 10-year treasuries don't look so good we go into equities more so we go into gold so if you believe that the fed is going to continue quantitative easing continue money printing you definitely want to own some gold step number three the dollar end game according to ray dalio like we said in step number two ray believes that the average joe the hedge fund managers the financial institutions all these entities holding treasuries 10-year treasuries or government debt are going to realize that they have long dated dollars and they're going to look at this and say we don't want anything to do with it when real interest rates are actually negative because this is return free risk meaning there's no way that we're going to make money we are guaranteed to lose purchasing power over the long run so all of the entities are going to start selling their treasuries they're going to rotate into a different asset class such as gold or precious metals that's going to increase the supply in the bond market at the same time this guy your drunk insolvent uncle sam is making it rain down on the real economy with stimulus checks and deficit spending this puts the fed into a very difficult position for more on that let's go right back to the bloomberg interview with ray dalio if that gets too far and it has and it's standing the risk of it's very dangerous it looks like a currency defense in other words if those who are holding bonds which are a lot um choose to sell the bonds because they're not providing a good return and they're not and because there's so much debt production and debt monetization that puts the federal reserve or other central banks in the very difficult position of operating like a currency defense mechanistically as money leaves that debt that means either interest rates would rise which would be terrible for the economy and markets or they're forced to buy more and more and that is how a spiral could could occur so the supply of bonds hitting the market increases which makes the price of those bonds go down and remember there's an inverse relationship between price and yield so if prices are going down yields and interest rates are going up but ray knows the economy cannot stand higher interest rates if interest rates were to go up the economy would collapse so the fed has to come in and buy all those additional treasuries that the government is creating by your drunk insolvent uncle sam's deficit spending along with the treasuries that are being sold by the entities that see them now as a hot potato the fed has to monetize the debt meaning they just have to print up more and more bank reserves as many bank reserves as possible to buy those treasuries to make sure interest rates don't go up and crush the economy but this takes us straight into a doom vortex the more the fed monetizes the debt the more the marketplace sells the treasuries the more treasuries the marketplace sells the more the fed has to monetize the debt so the next question becomes okay george well i get what you're saying but maybe the government deficit spending isn't going to be so bad maybe it's going down not even close the deficit is going the opposite direction we've got a chart going back to october 2019 all the way to september 2020 and the expected deficit of the government is tracking right along at about 500 billion this chart goes from 500 billion up to 3 trillion but we get to march and you can see that deficit start to go parabolic almost straight up till we get to where we are today and even the government's own projections of what their deficit is going to be is over 3 trillion dollars and we're not done with the year i would expect they're going to come up with another stimulus package that's going to take the deficits to infinity and beyond straight to buzz lightyear territory just to give you some context the deficit that the government will run in 2020 alone just for this one year is going to be close to the entire amount of debt the government accumulated from 1776 to the year 2000. let that sink in a bit so the bottom line is ray dalio sees deficits going through the roof the fed monetizing and printing money to control the yield curve you've been hearing that a lot yield curve control all the fed people are saying it in almost every speech and the only release valve for the money printing the debt monetization and controlling the yield curve or keeping interest rates artificially low is going to be the u.s dollar and that's why ray dalio sees the us dollar declining and eventually losing its reserve currency status for more content that'll help you build wealth and thrive in a world of out-of-control central banks and big governments check out this playlist right here and i will see you on the next video

Channel: George Gammon

Views: 143,586

Rating: 4.9393063 out of 5

Keywords: ray dalio, ray dalio qe, ray dalio dollar, ray dalio predictions, ray dalio gold, ray dalio silver, ray dalio us dollar, ray dalio inflation, ray dalio deflation

Id: RViGGmxOk9A

Length: 18min 48sec (1128 seconds)

Published: Tue Sep 22 2020