Ray Dalio sounded the alarm bell on Thursday (Friday AEDT) after inflation in the US surged to the highest level since 1990 and warned his followers that rising portfolio values don’t actually signify increasing wealth.
“Some people make the mistake of thinking that they are getting richer because they are seeing their assets go up in price without seeing how their buying power is being eroded,” Dalio wrote in a post on LinkedIn. “The ones most hurt are those who have their money in cash.”
Dalio, the billionaire founder of Bridgewater Associates, has long been known for his view that there are better assets to hold than cash amid central bank money printing. In periods of rising prices, he says it’s actually more important to look at what you can buy with that money.
“When a lot of money and credit are created, they go down in value, so having more money won’t necessarily give one more wealth or buying power,” Dalio wrote, adding that real wealth becomes a function of production capacity over time.
“Printing money and giving it away won’t make us wealthier if the money isn’t directed to raise productivity.”
Dalio had a firm warning for the US and said it would be important to keep the implications from policy developments in mind.
“There isn’t an individual, organisation, country, or empire that hasn’t failed when it lost its buying power,” he wrote. “The United States now is spending a lot more money than it’s earning and paying for it by printing money that is being devalued. To improve we have to raise productivity and cooperation. Right now we are on the wrong path.”
“At this time 1) the government is printing a lot more money, 2) people are getting a lot more money, and 3) that is producing a lot more buying that is producing a lot more inflation.”
“Right now there is far more financial wealth than can ever be converted into real wealth so it has to be devalued. When you are seeing your financial wealth go up as is happening now don’t think you are gaining real wealth when your buying power is going down.”
“Spending money on investment and infrastructure rather than on consumption tends to lead to greater productivity, so investment is a good leading indicator of prosperity. On the other hand printing money and distributing it without being productive won’t raise wealth.”
“Power changes come from wealth changes so watch who is doing what to create wealth changes.”
“History shows that when an individual, organisation, country, or empire spends more than what they earn, misery and turbulence are ahead.”