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Ray Dalio On How The U.S. Monetary Policy Has Rendered Itself Useless

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Bridgewater Associates founder Ray Dalio is one of those people that understands monetary policies and how to make money from it. This insight helped in making Bridgewater Associates one of the most respected Wall Street firms.

Dalio was recently interviewed by CNBC’s Andrew Ross Sorkin at the Dealbook Conference, in which he discussed the ineffectiveness of U.S. 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 in a complete extent, where there are both zero interest rates and basically zero spreads. That means that the effectiveness 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."

He continued, "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."

Posted-In: Bridgewater Associates CNBC Ray DalioEconomics Media

 

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