Ray Dalio On How The US Monetary Policy Has Rendered Itself Uselsss

There are very few people who understand monetary policies well and even lesser who can make money through that understanding. Ray Dalio, Bridgewater Associates founder, is one of those rare people and it’s this insight that helped him in making Bridgewater Associates one of the most respected Wall Street firm.

Dalio was recently interviewed by CNBC’s Andrew Ross at the Dealbook Conference, in which he discussed the ineffectiveness US monetary policy going forward.

“There’s an upward debt cycle and there is a lowering of interest rates that reduces debt service payments. When interest rates hit zero and there are large credit spreads, you can no longer have monetary policies and interest rate driven, you have quantitative easing. When there’s the purchases of those assets, it causes, those purchases causes those returns to go down, expected returns to go on down and it causes asset prices to rise and that’s been the transmission mechanism through there,” Dalio said.

He continued, “Now we have a situation in the United States to some extent, in Europe to a complete extent and to Japan to a complete extent, where there are both zero interest rates and basically zero spreads. That means that the effective of monetary policy will be less going forward. We are in a mid-part of a cycle and this is an easy part, good part of the cycle.”

 “As time progresses, let’s say in a year or two, whenever there might be a need for easing of monetary policy, we are going to be in a situation in which the effective ability to ease is very limited and that’ll be at the same time that the asset prices will be comparatively high […]”