Ray Dalio wrong about ‘great sag’

ECONOMY Ray Dalio says the world is in a ‘great sag’ and echoes the 1930s

Hedge fund titan Ray Dalio believes it is too late for central banks to reverse a global slowdown.


Dalio is warning that current conditions remind him of the Depression-era environment.


He says the world is currently entering a “great sag” as the natural cycle of growth ends.

I don’t agree with much of this. The econ data shows no such sag, and that compared to the rest of the developed world, the US is doing as well, if not better, than its peers as measured by data such as real GDP growth, stock market gains, employment rate, etc. Regarding current conditions resembling the ‘Depression-era environment,’ people have been saying that since 2009. If one looks, one can always find similarities between the present and the past, but that does not mean the necessary conditions are in place for the past to repeat. Central banks still have a lot of gas left. Interest rates in the US are at 2%, and the fed can lower them back to zero if need be. In 2009-2010, the prevailing narrative at the time by the pundits and financial media was that either the US would have a repeat of the ’30s or multi-decade stagnation similar to Japan. Few foresaw the v-shaped recovery in the US economy (as measured by GDP, consumer spending, exports, and corporate profits; unemployment took much longer to fall) and stocks that followed. Even though there were many similarities to the Great Depression or Japan, the necessary conditions were not in place, hence the outcome was much different. This is similar to chaos theory in that changing the inputs of a complex system slightly can produce wildly different outcomes.

Dalio said the world was also experiencing the biggest wealth gap since the 1930s and that was creating political stress.

There is no evidence of rising wealth inequality directing causing economic crisis, but that wealth inequality is only a consequence or byproduct of economic expansion and speculation. An economy that is expanding, and capital is cheap and abundant as it has been for the past decade, rising inequality will naturally follow. If and when the cycle and economy peaks and enters recession, inequality will fall, but saying that high inequality caused the recession is logically fallacious, or specifically, the cum hoc ergo propter hoc fallacy.

“Also like the 1930s, we have a rising power challenging an existing world power in the form of China-U.S. challenges.”

Yes, but that was AFTER the Great Depression began. The Great Depression created a void and instability that filled by powerful leaders and a much more authoritarian status quo.

This goes to show how even people with tons of money, influence, and supposed expertise can be wrong, compared to some guy with a blog. But it’s not that uncommon for ‘experts’ in the social sciences to be wrong compared to more rigorous subjects such as physics or math. Economics is much more subjective. Look how many experts were wrong in 2009 about the recovery. Very few people, myself included, predicted it would last so long. The overwhelming consensus at the time what that the US economy would enter recession again by 2013 due to budget cuts. Or in 2010-2011 due to Europe and Greece crisis. Or that there would be recession in 2014-2015 due to the fed ending QE and raising rates. Or in 2016-2017 due to Brexit and the election of Trump. Or in 2018-2019 due to tariffs and trade war. People like myself put less value on the headlines and political narratives and instead focus more on the data: how much profits are companies making, how much are consumers spending, how much is being exported, how does today’s economic environment compare to the past, etc. These figures have held up very well over the past decade of all the bad headlines.