Quote:
Originally Posted by DrVenture
And still more:
"INTERVIEW/Q&A. Ray DALIO (75), Retired Cofounder, Bridgewater. There may soon be a global financial “heart attack”. Strong dollar may create a crisis for highly indebted countries with weak currencies. Populist governments aren’t taking corrective actions but instead are loading up on more debt. He mentions a 9-stage debt cycle. All asset classes may be hit initially – stocks, bonds, real estate, etc. The US bond market is critical for the health of all other assets (in his heart analogy, the credit flow is like the “blood flow”). Selling of existing debt when a government is also trying to issue more debt can lead to a massive crisis (“heart failure”). Debt and debt services are like the “plaque” that builds up slowly. It’s hard to say when the crisis will happen. But watch debt servicing that is contributing to the US deficit of 6% of GDP now, 7.5% if TCJA is simply extended.
The deficit of 3% would be more normal but that will require hard choices for spending cuts and higher tax revenues. It was actually done during 1992-98 with tight fiscal policy but loose monetary policy (now both are loose). We also have examples of credit shocks of 1971 and 1994 when bond yields rose, and currencies weakened. Global political instability is causing higher defense spending and local onshoring, both globally inflationary. Foreign investors also evaluate the impact of sanctions. China is now facing the debt issues that Japan faced in 1990 or the US in 2008. The cure would be aggressive monetary and fiscal easing and debt restructuring (most Chinese debt is domestic). His advice for the US investors is to control risks, diversify and use tactical allocations. He is negative on the US sovereign debt, corporate debt and AI highflyers; he suggests including alternatives (including some gold and cryptos), selected EMs (India, Indonesia, ASEAN and GCC countries). Forthcoming book, “How Countries Go Broke”, 09/2025."
A lot to unpack here. What jumps out to me is that an extension of the TCJA is going to increase our debt servicing from 6% to 7.5% of GDP. Definitely the wrong direction - a 25% increase. Spending cuts and tax increases being the only realistic solutions. Those will hurt consumers which will hurt corporations and that hurts GDP. Probably the reason we keep pushing it down the road. And it isn't going to happen until we hit a wall.
|
I think a reasonable solution would have been to do the following (albeit no one would agree on it)-
1) let the TCJA expire
2) remove SS tax cap- we can't raise retirement age anymore
3) cut spending in the absolute largest categories - namely defense which is actually easy to make cuts in financially but very difficult politically
this would have at least gotten us moving in the right direction... but no, the answer is to spend spend and make cuts in tiny categories that in the grand scheme of things dont do anything...