My new podcast episode is out.

Mike Norman MMT podcast episode 6. The financial sector is too big and should be shrunk.

Here is my latest podcast.

Hedge fund titan Ray Dalio: Trickle-down economy 'not working' — Brittany De Lea

“This set of circumstances is unsustainable and certainly can no longer be pushed as it has been pushed since 2008. That is why I believe that the world is approaching a big paradigm shift,” Dalio wrote.

Governments are also battling large deficits, while pension and health care liabilities are increasing. The latter circumstance, he says, will result in an escalation of the wealth gap battle as the government decides whether to cut benefits, raise taxes or print money to address it.

This is far from the first time Dalio has sounded the alarm bells about either the U.S. or the global economies. In May, for example, he said a shift toward an economic theory backed by New York Rep. Alexandria Ocasio-Cortez – modern monetary theory (MMT) – was “inevitable” as the Federal Reserve eventually looks to ease monetary policy when interest rates are zero percent. MMT refers to the idea that if a government controls its own currency, there is no need to worry about balancing the budget. Therefore the government, not the central bank, can control the economy through fiscal policies, like spending and taxing.

Fox Business

Hedge fund titan Ray Dalio: Trickle-down economy 'not working'

Brittany De Lea | FOXBusiness

Here is Ray Dalio's post at his blog at LinkedIn. You may need to sign up to read.

The World Has Gone Mad and the System Is Broken — 5 Nov 2019

Annie Gilroy — Why Ray Dalio Says Shift to Modern Monetary Theory Is Inevitable

Dalio, however, agrees that MMT has weaknesses. He said, “The big risk of this approach arises from the risks of putting the power to create and allocate money, credit, and spending in the hands of politically elected policy makers.” He states that the system has been designed in a way that “highly skilled people” are in charge of decision making rather than politically motivated people. He added, “At the same time it is inevitable that we are headed in this direction.”

This is both a pertinent concern and also a legitimate one. Ralph Musgrave had observed this in the comments on the link to Dalio's article.

It's basically conservatism versus liberalism, "republicans" with a small "r" and "democrats" with a small "d" — Hamilton versus Jefferson in the US  and Tories versus Old Labour in the UK.

The former assume that the people at large are not qualified to make decisions that require any degree of expertise; hence, governing should be put in the hands of experts. This is the basis of "republicanism" as representative government. They especially fear "Jacobinism" as the rule of the rabble and recall "the reign of terror" during the French Revolution.

The later assume that sovereignty resides in the people, that a liberal government is a government of, by and for the people, and that political freedom is based on self-determination in a society in which all persons are equal before the law. They doubt that any government by experts will eschew privilege for the elite classes and and fear institution of a double-standard before the law.

The former favors hierarchical technocracy and the latter, consensual democracy. While lip-service is paid to democracy in liberal states today, the reality is that there are no genuine democracies. Moreover, there never has been, perhaps excepting some so-called primitive tribes.

Even if one accepts that MMT is the state of the art and science in macroeconomics, including as a "policy science," the political question hangs in the background. As a macroeconomic theory (economic science), MMT is supposedly value-free. But policy and politics are value-laden, and different value systems are indicative of different ideologies.

So this is a hot-button issue as MMT gains ground, and it is doing so quickly — alarmingly quickly for some.

Market Realist

Why Ray Dalio Says Shift to Modern Monetary Theory Is Inevitable

Annie Gilroy

Jeff Desjardins — How the Economic Machine Works, According to Ray Dalio

Three Major Forces

Dalio says this model has guided Bridgewater for over 30 years, and that there are three major forces that shape the economy:

1. Productivity Growth

Productivity growth, which is measured as a percentage of GDP, grows over time as knowledge, technology, and innovations help to raise our productivity and living standards.

2. Short-Term Debt Cycle

Usually lasting 5-8 years, the short-term debt cycle is a repeating pattern that occurs as credit expands and contracts.

3. Long-Term Debt Cycle

Usually lasting 75-100 years, the long-term debt cycle usually ends in a period of extreme deleveraging, where global debt is unsustainable and asset prices fall....

Visual Capitalist
Video: How the Economic Machine Works, According to Ray Dalio
Jeff Desjardins

Ray Dalio — There is a human tragedy taking place in America

Like Dimon, Dalio is focused on the education system. Dalio cited a study his wife funded in Connecticut that found 22% of students in the state are disengaged or disconnected. In his annual letter to shareholders, Dimon said "we are creating generations of citizens who will never have a chance."

"Now you think not only is that a human tragedy in terms of those kids, but that's also going to be a terrible social tragedy," Dalio told Henry Blodget. "When you look at some of the educational things that can be done that make such a world of difference to people, it's a terrible waste of resources and inefficiency. We have a problem with our human infrastructure."...

Business Insider

Ray Dalio: There is a human tragedy taking place in America

Matt Turner

Bridgewater's Ray Dalio having software designed to model his brain. Great. Isn't there enough junk economics out there already?

Don't we have enough "modeling software" that spews out junk economics?

Ray Dalio runs the world's largest hedge fund, Bridgewater Associates. He's having software created to model his brain.

Dalio believed or still believes that

The U.S.A. is "out of money."
The central bank monetary policy such as QE and ZIRP will cause hyperinflation and collapse the dollar.
That central banks are or, soon will be, out of "ammo."
That we borrow from the Chinese.

And on and on.

Dalio is more proof that just because someone has a lot of money or, even lots of money under management, doesn't mean they are smart or know what they are talking about.

Albert Einstein was arguably one of the smartest humans to ever live, and he earned about $65k per year in today's dollars.

Anyway, no problem for me. Instead of taking Dalio's money, I will take his computers' money.

Zero Hedge — Ray Dalio Praises Trump: Predicts "Huge" Changes; It Will Be "Glorious To Be Rich"

In one of the most euphoric praises for Donald Trump and the president-elect's fledgling administration to date, overnight Bridgewater founder Ray Dalio said economic changes under the Trump administration may be more dramatic than shifts from “the socialists to the capitalists” in the U.K., U.S. and Germany from 1979 to 1982, and predicted that "we are about to experience a profound, president-led ideological shift that will have a big impact on both the US and the world."

Comparing Trump to Margaret Thatcher, Ronald Reagan and Helmut Kohl, Dalio said the incoming administration may have a much bigger impact on the U.S. economy than can be measured by tax changes and fiscal spending. The Trump era could “ignite animal spirits” and attract productive capital.

In his summary of Trump's economic policies, Dalio urges readers to read Ayn Rand "as her books pretty well capture the mindset. This new administration hates weak, unproductive, socialist people and policies, and it admires strong, can-do, profit makers. It wants to, and probably will, shift the environment from one that makes profit makers villains with limited power to one that makes them heroes with significant power."…

By and large, deal-maker businessmen will be running the government. Their boldness will almost certainly make the next four years incredibly interesting and will keep us all on our toes.

The difference between Trump and Thatcher/Reagan seems to be populism. The US and UK are not emerging from a previous period of social democracy (New Deal) or democratic socialism (Old Labour). The US and UK are reacting politically to the inequality resulting from Reagan and Thatcher that goes under the rubric of neoliberalism. Bill Clinton and Barack Obama were more like Ronald Reagan than FDR, or even Nixon. Tony Blair was much more in the mold of Margaret Thatcher than Harold Wilson. Trump realizes that he has two years to do something significant for the middle class workers that voted him in, or his power base will crumble. If there is not significant economic improvement for workers in the 2020 campaign, he will lose his bid for reelection. Moreover, he will face a vicious opposition that will try to stymie his every move. Theresa May is in a similar position in the UK.

Zero Hedge
Ray Dalio Praises Trump: Predicts "Huge" Changes; It Will Be "Glorious To Be Rich"

Tyler Durden

Ray Dalio — Back to the future

The coming demise of neoliberalism as the present order owing to ideological resistance to using fiscal policy. Dalio expects this to result in financial and economic conditions reminiscent of the 1930's. Recall what happened after that.

MMT to the rescue with functional finance. If only.

The World in 2017

Back to the future

Ray Dalio, founder, Bridgewater Associates
ht Yves Smith at Naked Capitalism

Bloomberg — Ray Dalio Is Bullish on Trump Presidency, Bearish on Bonds

Trump’s presidency will mark a move to the right akin to the Ronald Reagan era, Dalio said. The new period will likely be characterized by decreasing globalization, increased U.S. growth as well as higher inflation, wrote Dalio, whose firm manages about $150 billion.

“We believe that we will have a profound president-led ideological shift that is of a magnitude, and in more ways than one, analogous to Ronald Reagan’s shift to the right,” Dalio wrote. “Donald Trump is moving forcefully to policies that put the stimulation of traditional domestic manufacturing above all else, that are far more pro-business, that are much more protectionist."

Dalio said his preliminary assessment of Trump is “broadly positive.”…

Bloomberg
Ray Dalio Is Bullish on Trump Presidency, Bearish on Bonds

World's largest hedge fund manager, Ray Dalio, flips out after China's stock market gives back 22% of its 118% gain!

Ray Dalio, founder and manager of the gargantuan, $169 billion Bridgewater Associates hedge fund, is saying "there are no safe places to invest" in China after the market gave back 22% of its 118% gain.

“Our views about China have changed,” Bridgewater’s founder, Ray Dalio, told clients earlier this week, according to The Journal. “There are now no safe places to invest.” Read more.

Is it me or  are these guys really losing focus? Isn't this just a correction after a runnup like that?

Dalio, I believe, was also one of those hedge fund biggies who expected hyperinflation and a dollar collapse (and maybe even spiking rates) from quantitative easing. He wasn't a "John Paulson," i.e. I don't think he ran out and bought gold or at least I don't think he made gold his biggest position, but nonetheless he bought into the same wrong analysis.

Now he's bearish on China.

All these hedge fund guys really think alike. Their big beef with China is that they think there is a credit bubble and they think it's manipulated.

There is no credit bubble because the banks In China are fiscal agents of the government and lend in yuan. If they lose money it's the same as deficit spending. China cannot run out of yuan.

And of course it's manipulated. China will tell you that. Any good economy is manipulated to make markets work for the benefit of all. In the U.S. markets are only made to work for the benefit of a few, but they're all manipulated.

Guys like Dalio and Western economists and analysts just don't get it.

Julia La Roche — How Meditation Makes Ray Dalio Feel 'Like A Ninja In A Fight'

West meets East. Peace ensures.

Business Insider
How Meditation Makes Ray Dalio Feel 'Like A Ninja In A Fight'
Julia La Roche

Zero Hedge — Soros Best In 2013, Tops Dalio With Massive $40 Billion Lifetime Gain

Size matters, it would seem, in the world of elite hedge fund managers. George Soros' Quantum Fund had its 2nd-best year on record, adding $5.5bn (22%) to the pound-breaking billionaire's horde and has now shifted above Ray Dalio's Bridgewater fund as the most successful hedge fund of all time. As The FT reports, since inception in 1973, Quantum has generated almost $40bn. Four other funds including Tepper's Appaloosa, Mandel's Lone Pine, and Klarman's Baupost also made more than $4 bn for their investors. Since they were set up, the top 20 hedge funds have made 43 per cent of all the money made by investors in more than 7,000 hedge funds.

Zero Hedge
Soros Best In 2013, Tops Dalio With Massive $40 Billion Lifetime Gain
Submitted by Tyler Durden

John Carney — Ray Dalio explains 'How the Economic Machine Works'

Back in 2008, Bridgewater founder Ray Dalio put out a paper titled "How the Economic Machine Works: Leveragings and Deleveragings." It was a long slog through history that explained why the financial sector and the economy had fallen into such dire straits.

Over the years, the paper was revised and expanded. It now runs to 210 pages and bears the title "Economic Principles." This, of course, is an intentional reference to Dalio's previous book-length paper titled simply "Principles."

Video, too.

CNBC NetNet
Ray Dalio explains 'How the Economic Machine Works'
John Carney | Senior Editor

Two kinds of deleveraging, and MMT rebalancing

Dalio's article, "An In-Depth Look at Deleveragings" is apparently authored by him. It concludes that the best way to "deleverage" is a "proper" combination of debt reduction (defaults and restructurings) and debt monetization (monetary inflation). This is what he considers to be a "beautiful" deleveraging whereas deleveraging by debt reduction and austerity are "ugly." The ugly ones cause recessions/depressions and deflation which is bad. Beautiful deleveragings minimize debt reduction and revive economies with monetary stimulation....

Dalio defines a beautiful deleveraging as one "in which enough 'printing' occurred to balance the deflationary forces of debt reduction and austerity in a manner in which there is positive growth, a falling debt/income ratio and nominal GDP growth above nominal interest rates....

What he calls "ugly", an austerity and debt reduction, is actually "beautiful". While it is painful, it is painful for a much shorter period of time and enables the "economy", i.e., people, to go bankrupt, repair their finances, start saving again, create new capital, and then create new economic growth and jobs. By preventing or delaying this process the policy makers only doom us to economic stagnation, inflation, and permanent high unemployment. And I fear that is exactly where we are headed.

Read it at Zero Hedge
Ugly = Beautiful; Beautiful = Ugly: Ray Dalio On Deleveraging
by Econophile

What Austrians don't seem to get is that the art of deleveraging, should it become necessary due to Ponzi finance as Fisher and Minsky describe, is to reduce debt overhang with minimal capital destruction. Austrians want to "liquidate malinvestment due to credit excess and don't seem to get that in a debt-deflation this involves massive capital destruction in an indiscriminate fashion. So recovery begins from a quashed capital base. That's ugly to me.

Monetarist solutions involve high unemployment and significant idle resources for some time. Hardly "beautiful."

The MMT solution for rebalancing is to provide the necessary net financial assets to non-government in order to offset increased saving desire and make space for deleveraging, while maintaining output and employment. Now that's elegant.

Ray Dalio making same mistake as Bill Gross?

CHARLIE ROSE: --So you have the same opinion that Standard & Poor`s had when they reduced --

RAY DALIO: Essentially.

CHARLIE ROSE: -- America`s credit rating.

RAY DALIO: Essentially. So I think -- and by the way I think it`s very important to understand that the government debt is the terrible challenging issue that we should talk about maybe but also more important is the private sector debt. So that resolving the public sector debt does not resolve the problem.

That individuals face the same problem meaning that they`re overly indebted and because they`re overly indebted and spend a lot of their consumption through borrowing and they had a -- it was like if you borrow you have a party and everything`s good and you have a prosperity and you -- you have your party, you hire the caterers, they`re employed and everybody`s happy.

So that there`s a private sector debt issue at the same time as the public sector debt. They`re both. So if you resolve the budget deficit, you do not resolve the private sector debt issue. Both of those things mean we`re both overly indebted. We cannot -- the amount that we owe and have promised in its various forms can`t be paid.

Video and transcript at Zero Hedge, Dalio: "There Are No More Tools In The Tool Kit" - Complete Charlie Rose Transcript With The Head Of The World's Biggest Hedge Fund