Ray Dalio Says Money Does Not Equal Wealth, Advises People Not To Depend On The Government

Founder of Bridgewater Associates, Ray Dalio, wrote a 13,000-word post on LinkedIn, giving readers a preview of his latest book “The Changing World Order,” in which he connects the past with the future and explains the relationship between money, credit, debt and politics, and geopolitics.

Money Does Not Equal Wealth

“What is Money?” is the question Dalio poses to his readers. He explains that money itself has no intrinsic value and nor does it equate to wealth. Not all money is created equal, countries that can print reserve currencies have the edge over others.

The billionaire investor notes that the United States’ currency still accounts for nearly 55% of international transactions. He writes, “A reserve currency is probably the most important power to have, even more than military power.”

Calling direct transfers of cash to citizens in times of the ongoing pandemic “helicopter money,” the billionaire noted that the U.S. central bank was running the monetary policy in a manner that may be good for Americans, but not for others around the world who use the dollar.

Productivity Is The Key To Real Wealth

Dalio says that both money and credit are associated with wealth, but “they aren’t wealth.” He explains that there is a positive correlation between the creation of money and credit, and the amount of goods, services, and investment assets produced. This feeds into the myth that money and credit equal wealth.

He explains, “But one cannot create more wealth simply by creating more money and credit. To create more wealth, one has to be more productive.”

Central Banks Are Purveyors Of Stimulants

Noting that economic cycles are typically eight years long, Dalio explains the functioning of modern-day central banks, “Think of the central bank as having a bottle of stimulant that they can inject into the economy as needed with the amount of stimulant in the bottle being limited.

When the markets and the economy sag, they give them shots of the money and credit stimulant to pick them up, and when they’re too hot, they give them less stimulant.” He says that the moves of central banks lead to rises and declines in the amounts and prices of money and credit, goods and services, and financial assets.These moves, he explains, “come in the form of short-term debt cycles and long-term debt cycles.”

According to Dalio, we are now living through a long-term debt cycle designed in 1944 in Bretton Woods and put into place in 1945 at the end of World War II.

Don’t Depend On The Government

Dalio says when a bank’s claim on money grows faster than the money in it, banks — private or government (central banks), both eventually default. In the case of central banks, they have the ability to devalue their claims by 50-70%, if denominated in the national currency. In case of debt denominated in a currency they cannot print, they must default entirely.

The hedge fund manager gives a stark warning, “History has shown us that we shouldn’t rely on governments to protect us financially.” He explains, “We should expect most governments to abuse their privileged positions as the creators and users of money and credit for the same reasons that you might do these abuses if you were in their shoes.”

What may ring true in the present circumstances where there is increased demand for financial relief from all sections of society, he writes, “When you can manufacture money and credit and pass it out to everyone to make them happy, it is very hard to resist the temptation to do so.”

Dalio cautions that throughout history, rulers have “run up debts” that won’t come due “until long after their reign is over, leaving it to their successors to pick up the pieces.”

Photo Credit: Public domain photo via Wikimedia.