Ray Dalio is worried that the ability of central banks to stimulate economic growth through lowering the cost of debt is coming to an end

RAY DALIO: The 75-year debt supercycle is coming to an end

by Ben Moshinsky


When Ray Dalio talks, people tend to listen.

Dalio is one of the most successful hedge fund managers of all time, founder of the $82 billion (£57.1 billion) Bridgewater Pure Alpha fund.

He's worried that one of the fixed constants of economics — the ability of central banks to stimulate economic growth through lowering the cost of debt — is coming to an end.

In an op-ed article for the Financial Times published this week, Dalio said:

We are seven years into the expansion phase of the business/short-term debt cycle — which typically lasts about eight to 10 years — and near the end of the expansion phase of a long-term debt cycle, which typically lasts about 50 to 75 years.

What I am contending is that there are limits to spending growth financed by a combination of debt and money. When these limits are reached, it marks the end of the upward phase of the long-term debt cycle. In 1935, this scenario was dubbed "pushing on a string."

Dalio says risk premia — the return of risky assets such as bonds compared with cash — are at historically low levels.

This makes it harder for central banks to keep pushing up the prices of these assets with loose monetary policy, such as low interest rates and quantitative easing, because there is less incentive, or yield, to compensate investors for taking the risk on debt.

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