Ray Dalio: The 3 Biggest Issues for the Economy in 2021

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So a few weeks ago, Ray Dalio, the founder of the world's biggest and most successful hedge fund called Bridgewater Associates, he sat down with CNN to do an interview and give his updated thoughts and opinions on the economic situation heading into 2021. We talked a lot about the problems that we face going into 2021. So in this video, we're going to discuss a couple of different clips and a couple of different ideas that he brought up in that interview.

Let's start first of all with hearing Ray's perspective on the economic situation heading into 2021.

“You see what most people don't. It's why you predicted the 2008 financial crisis. And now the vaccine having authorization, it's making a lot of people really hopeful about the U.S. economy in 2021 and beyond. But I wonder what you see that maybe other people are missing. What's your biggest worry about our economy right now?”

“Well, I think that the economy will probably be pretty good next year. Economies go up and down, and rebounds happen. But there are an evolution that's taking place, and there was almost a defining moment in 2020. The evolution is that there are three big forces that are underway.”

So just quickly, interestingly, he's quietly optimistic about the economy. However, Ray doesn't just think about, you know, the economy of say the USA. He's always thinking big picture, really big picture. And now what he's going to go through is detail the three big issues that he believes the world faces right now and what we need to do about them.

So let's have a listen.

“The evolution is that there are three big forces that are underway: that is the wealth values gap and political gap, which has big implications for policies, how to divide the pie, and so on. Left and right, big issue.”

So number one, currently in the U.S., there is an enormous divide. There is a social gap, there is a political gap, and there is a massive wealth gap. Ray talks about this a lot during the interview, how America needs to stand together and work towards a common goal because that is the recipe, that is the formula for creating economic prosperity.

Quite frankly, this idea of standing together and working towards a common goal is something that has been absent in America over the past four years. So with that said, let's now listen to Ray's words on how to solve this issue of having that big political gap, having the social gap, and having the wealth gap.

“I think that the most important thing for the country is bringing the population together because the conflict is our biggest issue. That notion of being in things together; these are basic things that throughout history and throughout civilizations, the common pulling in a direction and believing in it and believing the system is inclusive for you and also fair, and that it's productive so that you don't spend too much money. You make productivity. That's a timeless and universal formula for success, and the opposite is a formula for problems.”

“There has to be the bringing of the country together but in a smart way that there's not just the giving of money and where it's needed there, and it is needed in places, but the emphasis on productivity. Things that I don't see much about is education, infrastructure, and those things, and I think those are important.”

So I find this really interesting. The formula for economic success is to get everyone working together on the same page to try and achieve the common goal. And that is something that the Biden administration will have to work very, very hard to facilitate. I also found Ray's insight interesting that, you know, we need to get everybody on the same page, working towards a common goal because that is what's going to increase our productivity.

When it comes to political intervention, there's been so much talk around the idea of, you know, financial assistance and cash payments to people that are in need, and Ray definitely agrees with that. And he says there is a definite need for that kind of assistance. But he says more importantly, what we need to be doing is focusing our spending on assistance and resources and job programs, and whatever that are actually going to solve the underlying issue and lead to an increase in the country's productivity.

Ultimately, we need to solve the jobs problem. We need to solve the output problem because getting the productivity of a country back on track is the number one ticket to getting back to that economic prosperity for everybody.

For example, you can just straight-up give someone say a two thousand dollar cash payment to relieve financial stress, but the point is you don't only want to do that. If you just give them the payment, then over time their situation won't change. So eventually that two thousand dollars will be used up, but at the end of the day, the unemployment will still be there and these people won't be contributing to the output of the country.

So first things first, we need the unity. We need people working towards a common goal, all working alongside each other. And we need that assistance and resources that help solve the productivity problem to get back to a period of economic prosperity.

Have a listen to this clip where Ray really hammers home this point. “I don’t think that there is a plan for dealing with productivity. If you want to raise your living standards as a country, it's like raising your living standards as individuals or companies. You have to sell more than you spend, and you have to take that savings and build a good balance sheet, and you have to employ people productively. If we don’t have broad productivity and employment, which comes from education and jobs programs and such, then we're going to have a continuation of the worsening, the greater polarity, and I think that that'll be a problem.”

“So yes, that's something that has to be dealt with. History has taught us these things. I've studied the last 500 years of history and cycles, and these things repeat over and over again. Large wealth gaps with large values gaps at the same time as there's a lot of debt and there's an economic downturn produces conflict and vulnerability, and that will be with us unless the economy is good for most people. Most people can be productive and effective and benefit.”

So there you go. In Ray's eyes, that is issue number one. Now let's have a listen to what Ray believes is the second big issue that we face currently.

“The second factor is the production of debt and money by central banks, the hitting of zero interest rates, the need to produce a lot of debt; and with that debt, the central bank printing the money and buying that debt. That has not happened in this degree since the 30s, and it's a big thing. It has to do with the value of money.”

So secondly, another big issue that we're seeing globally is central banks printing a hell of a lot of money. If we just look at the United States, the Federal Reserve in 2020 alone printed about three trillion dollars. And with Joe Biden, he recently announced his rescue and recovery plan for the United States economy, and that's going to come in at 1.9 trillion dollars.

Now regardless of what you think politically as to whether the program's good or not, if it goes ahead, then that debt will eventually need to be serviced. So this is obviously another big point that needs addressing. It's not like you can just run away from issues like this.

And this brings us back full circle to what we're talking about in point number one. Obviously the best way that you're going to be able to service your debt is to make sure when you get that money, you do something productive with it. You increase your GDP, you increase your productivity.

Because you can think about it simply. Just think about it like a loan that you might take on. If you borrow money to go and buy a TV, well, the TV doesn't do anything for you; it doesn't help you make any money. So that's really bad debt. But if you went to the bank and you got a loan which enabled you to buy a tractor, which then helped you increase the farm's output by 20% annually, well, that's a good situation, right? That's where you're using debt effectively to increase your productivity, to increase your profitability so you can pay back that debt, and then you've still got money on top of that.

So that's the challenge that faces a lot of countries. They're taking on a lot of debt, but they have to make sure they spend it wisely so that the productivity increases so that they can easily service that debt, and they can also get economic growth on top of that. So that's really the second big point that Ray brings up.

And the third big thing is the changing world order. And by that I mean the rise of a great power to challenge the existing great power, the United States. We began a world order in 1945; new world order, American world order. And now China is rising, and that competition is an important factor.

Now for the record, Ray is not saying that, you know, China is threatening us or we need to squash China or anything like that. Certainly not. What Ray is referring to is his research that he has done over decades and decades into the economic history of the world, and he's followed the history over the past, say, 500 years.

What he's seen, and I'll throw the chart up on the screen: this is from his latest book called “The Changing World Order.” As you can see, when a rising power comes up to meet an existing power, usually there is some form of conflict. In the past, it’s basically always led to a major war.

So with this knowledge that every time there's a rising power that comes up to challenge an existing power, there ends up being some form of conflict, surely we can learn from history and try this time around not to repeat it. It's a much better idea if we work together so that everybody can prosper as opposed to starting a conflict between the world's top two powers, which inhibits both of those economies for a period of time as that resolution, as that conflict finds some sort of resolution.

And that's kind of what we saw with the trade war, right, between the U.S. and China. Like, nobody wins a trade war. The only outcome of a trade war is that you lose less than the other country, right? But nobody benefits from a trade war.

So that's the third big issue that Ray brings up in this talk: can we work together? Especially at a time like this where around the world economies of various countries are just absolutely down the toilet. Even some of the world's biggest players are struggling, okay, with their economies. You can just look at the U.S. and you'll see that.

But can this be a time where instead of rising powers ending up in conflict, can we work together and ensure that there is economic prosperity for everyone? Now Ray doesn't give a guess as to which way he thinks it's going to happen, but he just highlights that that is the third issue that will eventually be addressed at some point in the not too distant future.

Those three things together will be with us as we rebound. The virus was a stress test, and it differentiated countries and differentiated companies. And so we're coming into that in a very different kind of way with those factors remaining.

So overall guys, they are the three big takeaway points or the three big issues raised in this interview by CNN with Ray Dalio. And I find it really interesting. I find it interesting following along how Ray's view of the economic situation that we're in changes over time.

Because look at some of the interviews he did last year; he was very pessimistic. Now maybe with all of the news about the vaccines coming out, he's a little bit more optimistic. But you know, he's not thinking of sunshine and roses everywhere. He definitely still respects that there are three big issues that obviously the issues we talked about in this video that need to be addressed at some point in the not too distant future.

Anyway guys, that's what I've got for this video. I hope you enjoyed it. Make sure you leave a like on the video if you did enjoy it or if you found it useful. Make sure you subscribe to the channel if you haven't done so already, and make sure you leave a comment too. I'd love to hear your thoughts and opinions on Ray Dalio's thoughts on the 2021 economic environment and the three big issues that he raised in this interview. Let me know your thoughts and opinions down in the comments section below.

Anyway guys, that will do me today. I gotta pack up because I'm about to go to the cricket. So I hope you have a good day. I hope I have a good time at the cricket. I'll see you guys next time.

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