This is Working LIVE: Ray Dalio

hello and welcome to this is working i'm dan roth i'm the editor-in-chief of linkedin every week on this is working we talk to leaders who are trying to help us navigate through this pandemic world or shape the way the world looks once we get through it we cover economics healthcare small business career issues whatever it is you're wrestling with in your professional life we want to cover here i'll start the conversation off then bring your questions to our guests so please leave your comments below today we've got ray dalio with us ray founded the world's largest hedge fund firm bridgewater associates with 150 billion dollars in assets under management bridgewater would be one of the top 60 largest countries in the world if it were a country ray founded the firm in 1975 but lately he's been thinking way before that writing on linkedin about how what we're going through now plays into what the world has experienced before in terms of economic and social cycles and he's going back to almost 600 a.d to discuss what we can learn from what's happened in the past so ray thank you for joining us here really appreciate it can you just start by putting some perspective around what we're going through i think a lot of us have suffered through the financial crisis of 2008. in your mind this is bigger than that this is a reset can you give us some sense of what uh how this looks in in the scope of history uh yeah i well let me just describe it as uh follows the the um there are cycles um uh there are debt cycles uh there's money and credit and then there's real economic activity and um so think about it the following that what is happening um is a cycle that began in 1945 we began a new monetary system the world created the dollar as the world's currency at the end of world war ii and then we began a debt cycle and spending power comes from money and credit and so central banks create money and credit and we have the world's most powerful central bank because the uh dollars the world's currency and we began a cycle and that cycle allowed more and more stimulation but we accumulated more and more debt and the ability to do that diminishes as interest rates get closer to zero because usually they stimulate with by cutting interest rates and when the interest rates hit zero central banks have to print more money and buy more financial assets which they did in 2008 the way they did it in 1933 and then the economy picks up on that and we create more money and debt and then you have a downturn now this downturn came because of a virus but um if whether it came for a virus or for any other reason it's an economic downturn in which the central bank um has a limited ability to be stimulative so think of it this way every individual every company every country has a certain amount of income and a certain amount of expenses and then a certain amount of savings and when the income falls so that it's low maybe even below the expenses they have to deal dig into uh their savings and so what we're experiencing now is with a lot of debt there was a fall in income that um and a lot of people and a lot of countries and a lot of companies don't have an adequate amount of savings and so that's where the financial crisis comes from if the um if the virus never comes back again um think of it as like a tsunami that has produced it recedes and there's still damage in this financial damage and so what we see now are holes in income and holds in balance sheets and then you're seeing the central bank the world central bank the federal reserve fill it in for americans try to fill it in for americans so you're seeing unprecedented amounts of creation of government debt um borrowing money because where does it get the money from it borrows it it borrows from the federal reserve and then it gives that money out to fill in those holes so that's in the process that's happening very similar to almost identical to um march of 1933 when roosevelt did the same thing and it's happening at a time like back in the great depression when there were relatively large wealth gaps and because of those large wealth gaps there are more political gaps and there's going to be probably a lot more arguing about how the wealth pie should be divided and so that's the mechanics and it's happened through history throughout throughout history we've gone through the cycle of um this debt cycle and financial cycle having to do with prosperity and then difficult times uh if you're just joining us right now we're here with ray dalio he'll be taking your questions in a bit ray you talked about the uh the role of the u.s central bank here we have members joining from all over the world from toronto from india george from ireland amita from toronto phyllis from india honor from turkey there is questions not just about how the u.s goes through this but how every one of these countries you've talked about how the eu and the us can that have strong enough central banks that they will be protecting their own countries what happens to let's start first with what happens if you are in a country that doesn't have a central bank that can print enough money to be able to fill in those holes as you talk about yeah so figure in every place there are these holes and the united states because 70 of the world's transactions buying and selling and about 70 percent of the storing of wealth outside the country reserves and the like is in u.s dollars so the u.s has a monopoly on those dollars almost the there's a european central bank much smaller there's a japanese central bank much smaller china has a central bank they could take care of the chinese but by and large we're living in a world economy because if you want to buy things you pretty much have to buy them in dollars now what that what's happening now is that the united states production of dollars is largely going to americans and that those who have financial holes um that are often in dollars there's about 60 trillion dollars of debt in other words it's owed in dollars uh that is owed by non-americans and as a result of that they need dollars and it's going to be much more difficult for them to get dollars to pay that debt that's one of the big things that's going on so in europe it's a bit better than that they're going through a similar process in china they can manage that japan can manage that they also have savings large savings you can measure it in reserves but a lot of the rest of the world is going to have to look to its own balance sheet and it's going to look some countries um you could look to their savings you could look to uh their reserves and you say how much do they have in savings um and they'll have to draw on those savings and some of them will run out of those savings uh even the rich countries uh think about um oil uh producing countries uh their revenues are a lot less than their expenses and then they have savings quite substantial savings uh but that savings is going to have to be drawn down they're going to have to sell assets and draw that down and so a lot of the world will not be protected the primary protection mechanism for doing this is the imf and the mayan map has about a trillion dollars in assets and now they're arguing about how much money um should be uh put out for supporting you know the g20 countries how much would they chip in to support it and it's unlikely to be very much so those other places are going to have um a shortage of hard currency they manufacture their own currencies of course but those are not widely accepted they're not widely accepted uh for international transactions and they're not widely accepted for savings and so that diminishes the value when they print those currencies that diminishes the value of those currencies because there's not that much demand and so i think it's going to be very difficult for non-um for those countries a question from fabio that relates to this which is should we expect to see uh inflation rearing its head then especially in those countries are going to be printing their own currency there are two kinds of inflation there's the supply and demand inflation you know in other words when the demand for something is high and there's not enough of it it goes up in price and then there's monetary inflation monetary inflation means that you print a lot of money and even though the economy can be very weak you can have a monetary inflation because the supply of money and credit increases so much faster than the goods and services even though there's not much demand for that so um it'll depend on which country you're in um all this printing of money and credit right now in the united states is to fill in holes in the in the balance sheets so in and of itself rather than um causing higher level inflation in a place like the united states or europe or japan uh what it's going to do is reduce a greater amount of deflation and because it's just filling in those holes um however uh we should talk about what is the value of money what is the storehold of wealth but when you get into um other countries that's not true so they will have uh the printing of their own money it won't be in much demand and and yes there is a significant likelihood that they will experience monetary inflation even while the world is has a shortage of demand all right we'll take you back to the u.s uh in your study of big debt crises and this is a question that comes from nick rodden jones you said that you once we see the right type of monetary and fiscal stimulus in a sufficient scale that usually marks the end of a crisis do you think that what the what big governments have been doing lately that's been a sufficient stimulus to bring back economic activity or is there still more to go here we estimate that the amount of losses in the united states in terms of actual losses is in the vicinity of about five trillion dollars and that the losses in the world is a bit over 20 trillion dollars um and then of course it's it differs from um so you just can't put that number out you've got to get it in the right places uh right now um i would say um it's still short in the united states and not getting necessarily in the right places and in the rest of the world um it's still significantly short and so as the world is intertwined uh the balance sheet problems and the income problems or other places are going to matter um even if the virus did not play any role in the future of course um there's some likelihood significant likelihood that it will um you know that's a whole other subject but it looks like the amount is still isn't enough and um worse so in the rest of the world than it is in the united states um and it's not necessarily all getting in the right hands at the right speed so it's going to be difficult well let's stay on that topic for a second since 2019 you've been writing about the problems with capitalism the need to uh rethink capitalism in a way that actually helps support all parts of the economy rather than certain groups getting doing incredibly well and other groups really falling behind is this pandemic going to make things worse are you optimistic that things will get better out of this how should we think about it throughout history um the up expansions in prosperity are disproportionately shared and then there's a large wealth gap the roaring twenties um was an example of that and and so um when you have that rise we think of as an economy as going up and down but uh there are the lower level ones people who are um don't have as much and during economic downturns there has to be there's some form of redistribution of wealth that it almost always happens because it's uh this the hardship is disproportionately uh felt so we had a large um wealth gap and and and i think what bothered me more than that was the large opportunity gap um education was not the same and and so on so um as we go down in this time of difficulty um we will be arguing there will be probably a lot of arguing about how to divide the pie you know there's a as a principle an economic principle if you have a large wealth gap and you have an economic downturn there's likely to be a fight over how to divide the pie so with time particularly here in this political year there's going to be a lot of arguing um about that and how we do that whether that's a civil argument or whether it's a fight is going to be important and whether that's done intelligently uh i believe in um the capitalist um uh profit making system because it's the best allocation of resource and it creates equal opport if it creates equal opportunity it's great um because if the revenue that comes in is not greater than the expenses so in other words what you're putting out is not greater than what you're taking in to make it the system reallocates resources and it also brings capital to those who can do that but it's not complete in that there are dimensions a lot of dimensions like education uh my wife uh particularly works very closely with in connecticut with disengaged and disconnected youth we're giving so let me give you an example um in connecticut which is one of the richest states in the country 22 of the high school students are disengaged or disconnected now i'll tell you what that means disengaged means that their absentee rate is greater than 25 and they're failing classes so school high school isn't working for them and um disconnected means they don't know where they are they don't come to school anymore those the usefulness um poverty is a big issue so when we get involved with that um we just were in a situation where they um food in their house they go to school to try to get food they online education they don't have computers so we have you know we've gone out and bought them computers um so the um the notion of is this a system that provides equal opportunity could be productive equal education those types of things i think is a that was those were the concerns and the disparity um in the outcomes was very large like for example um the in the i broke the economy up into different quintiles and i looked top 40 percent in relationship to the bottom 60 because the 60 is the majority and on average the amount that is spent for a child's education of someone in the top uh 40 percent is five times as much money as that which is spent for their education in the bottom sixty percent so things like equal education equal opportunity uh is not necessarily achievable in the same way um through uh a profit-making system the profit-making system can't do all of that so that's what would concern me and also the the conflict itself because the conflict itself threatens to bring about more um a swing away from capitalism right so um anyway that was what concerned me and i think that now we have greater reason to be concerned well we have greater reason to be concerned and you talked about in from uh this looks really similar to the 1930 the 1945 um global shift to come out of that you talked about the fact that there has been there was a lot of investment in the economy a lot of investment in new businesses we're seeing questions coming in about what the economy is going to look like coming out of this uh jeremiah rumi melissa are all asking questions about what the where the investments are going to be coming out of this do do you expect to see a change in how in the kind of businesses that can pick up what happens with supply chains is there is there more uh reshoring of manufacturing so that people are building around them does that change the economy can you talk about post pandemic what does the economy look like where are the investments yeah again i think it starts when we talk about investments you have to start with who has what money to invest that's where it starts and that's why you have to look at um incomes and balance sheets of all of the pieces okay and what's happened is it's it's damaged so there are holes and so um so when we look at that uh right now today a lot will depend on who gets the support uh so there's going to be a re an important redistribution of wealth that is happening today when checks go out and get sent to people to fill in those particular holes the economy will then re-adapt you know it it but it'll adapt on you know i i want to encourage you to think of it as follows there is a there is a real economy um that doesn't just imagine there's no medium of exchange that there's no money in credit that it's just the real economy the things you have around you and the ability to produce that and then there's simultaneously this financial economy that has a lot of ious people um who have accumulated this buying power who have a claim on the goods and services purchases as do the producers so the amount of claims on these the the the debt is a um is a suck uh a vacuum cleaner essentially of um uh that um on network it's a claim on net worth and so how that's filled in by the governments and how well it is will be a defining characteristics i would imagine that what's going to happen is that savings rates are going to rise that'll be individuals and companies because everybody wants to assure themselves of safety it's redefined financially i imagine that the priorities are going to shift in other words the priorities will be into health care and and and building the basics i imagine i imagine um you're going to see um um you know we'll learn things about social distancing and so on and regards the uh last part point of the question yes we're going from a world that was interconnected and worked in a way where the most efficient producers on a global basis would compete with each other to sell things and so it would be originated wherever it was best and it was a highly interconnected world and a more efficient world because of that ability to specialize that won't be anywhere near the same they'll we're now going to be moving to a self-sufficient world not only will individuals want to assure their self-sufficiency but countries are going to want to have itself sufficiency because they're also vulnerable it's a different geopolitical world so for political reasons and for various reasons right now um merchandise is being shipped from china to the united states for masks for ventilators and so on um that's a a vulnerability i imagine we're going to then want to build those things and build self-sufficiency when those that self-sufficiency is built it'll make things more inefficient in the process and so yeah the world will look uh different in that way that's going to have huge impacts for manufacturing for small businesses for retail uh we're gonna all watch this play out one of the things you didn't mention and this comes a question from lucas bell is what's the role of of of the wealthy here what's the role of billionaires you're a billionaire how do you think about uh the what you and other people who have been who are at the top of the who benefited the most um from the economic situation what should they be doing what should you be doing well um first of all uh each each makes personal choices and then the system makes establishes rules what each person does is a matter of their own preference in my case um you know i grew up uh lower middle class family and um i had opportunities and i have um two parents who cared for me i went to a public high school and i came out in a world of um that was equal opportunity and um so for me personally um i'm not into luxuries i don't believe that my kids um should be um it's not good so i for me um you know i've this pic i'm um i have my priorities to do things philanthropically and then also take care of my family like everybody else other people will have different priorities they may have the same and then there's laws i think that we're now in a society where we must realize that we're in the society together and that the large uh wealth gaps particularly when they're representing large um opportunity gaps are i'm not fair and they're not productive because when a large percentage of the population is in a position where they can't have equal education or even adequate food children there's no excuse for kids to not be able to have enough uh food and such things i think there has to be a reorganization of the priorities and and also people have got to believe it's fair i think that we're at a risk of um losing capitalism that the potent the swing can be more in the opposite direction so i hope that there will be a re-engineering that's before we had this crisis as you say i wrote a piece on linkedin it's still on linkedin which is um how and why how much capitalism needs to be reformed and i think it has to be reformed behind an american dream what is that american dream and i think it's something like equal opportunity but it has to be not uh just uh financial help and giving money away that has to be converted into productivity because we can only consume uh what we can produce and so that i think that there you know there needs to be a restructuring um and i think that you know billionaires let's say um have become that way typically because they came up with something special that the world paid for most of them never imagined it um and um and the world paid for it and made them rich i would say that as we go forward um we have to recycle that opportunity a lot more great uh we are on here with ray dalio one of the top voices on linkedin i know people really tune in to a lot of your pieces that you've been writing about and the book that you wrote called principles about how to govern yourself in work and really in your personal life also um question from shireen is about what kind of skills you expect people to need that might be different coming out of this financial crisis and pandemic and if any of the advice that you've given in principles changes because when you wrote that we were going through a boom talent was in demand now we're looking at unemployment at numbers we haven't seen in a very long time uh does it change at all how people should think about what they where they invest in their skills and what kind of jobs they should be going after well you're asking two questions um what jobs and so on in the future and then you're also asking those principles yet you know um that was written uh over 25 years of accumulating experiences which are up and down experiences and there's as much uh principles the principles are more relevant for how to deal with bad times and protect yourself about bad times than they were about good times so whether you look at that book or you look at my 30 minute video which is called principles for success it's it's it's online in youtube it's principles for success the same basic principles how do you deal with that back down times how do you deal with other times they apply i i think uh equally the same which is just is anyway i won't get into that as far as um let's say the big picture these adjustments go on for relatively few years in the hope and the scope of things like this restructuring process will probably take place over you know maybe the next three to five years and i know that's a long time but it's not forever and the human capacity to adapt and invent and come out of this is much greater you could see in history these economic difficult periods like we're talking about are relatively brief periods um but they're painful periods but there's restructuring periods that's what they basically are and that amount of that adaptability and so in the future i think that um we should be very excited about um um the the way the new future what is that evolution it's it has to do with how we think and about data and about um digital um so through history there were changes in what mattered you know in the old days there were it was an agricultural economy and wealth meant owning land and then an industrial revolution wealth may meant being able to produce things and make machines and physical things we're now in um a wonderful revolution in terms of the capacity uh to think and use that in a way so um i i would say that um that is um absolutely probably the most treasured thing in the in the future so one's ability to do that to interact in a digital way and help that kind of thinking either as a user of it effective user of it or an effective uh builder of it um i think that that's going to be important however there are all sorts of skills of various dimensions so there are people we we're supporters of trades and trade skills the importance of having nervous the importance of having um many other jobs so it'll be wide ranging and it'll be um you know it'll increasingly become clear but i would say um understanding your you know your thinking skills or using digital uh support mechanisms for thinking would be the most value that's terrific well ray that's a great way to end this uh it's very optimistic to look at how we can adapt and invent and work our way out of what is going to be very painful restructuring thank you so much for joining us here i'd like to have one more thing we have enough resources at to make this all fine and we have enough creativity it's all going to depend on how we are with each other whether we can do this together in a inclusive more bipartisan way and do it in a skilled way calmly or whether we're going to fight with each other if we fight with each other internally or even externally it's going to make this thing very painful but if we can engineer in a um bipartisan way and and do that together but that's going to be difficult so it really is up to us of how we are going to be with each other that is the most important thing that's great uh what a way to end it ray thank you so much really appreciate it uh and this is this is working we will be back here next week stick with us at 12 p.m eastern we'll be back on the linkedin editors page live with business unusual where our host will be chatting with a panel of startup founders on how to operate during covet 19 and they'll be taking your questions you heard ray dalio the founder of bridgewater associates talk about the scope of what we're going through and how it looks compared to previous eras and the fact that humans are able to find their way to invent uh ways out of this and to get through a very painful time these startup founders will walk talk about how they're doing it and how you can do it yourself so please tune back into 12 always come back every week for this is working and thanks for joining us i'm dan roth the editor-in-chief of linkedin it's been great being here with you

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Keywords: Linkedin, linkedin video, linkedin editorial, linkedin news, business unusual, covid, covid-19, coronavirus, ray dalio, bridgewater associates, this is working, dan roth

Id: iVRRg90lRto

Length: 31min 57sec (1917 seconds)

Published: Tue Aug 25 2020