A rather staggering suggestion from one of the world’s leading businessmen has suggested that another depression may be on the cards if “things continue to move in the wrong direction”.
The statement comes from Ray Dalio, founder of the Bridgewater Associates investment firm, and frequent member of ‘most influential people’ lists. Dalio was speaking to reporters from CNBC when the suggestion was made, as they interviewed him on the eve of the World Economic Forum annual meeting in Davos, Switzerland. This yearly event sees many of the planet’s leading figures discuss some of the major issues concerning the economy, science, and politics to name a few; what better time to make such a bold statement about an already unstable economy?
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With unstable lending rates, the introduction of new technologies such as peer to peer lending apps, and many other causes of uncertainty in the economy, what else could possibly happen now? Dalio states that such a risk is posed because of “assets correlating”. This had led to asset prices entering bubble territory, essentially meaning that the price of assets is based on the rather uncertain economic future, instead of their actual intrinsic value.
So, what’s the solution to all of this? Mr Dalio believes that the Federal Reserve System (the central banking system for the United States) will further increase quantitative easing (QE) – injecting more money into the banking system as a last-ditch attempt to boost the economy. It may sound too good to be true, but that’s because it is. QE can easily lead to out-of-control inflation rates, which is the last thing the economy needs. QE has been proven to have stabilised the US economy slightly since the last recession, but if another depression occurs, it may not be enough.