A giant transfer of wealth from public sector to the private sector has made the economy less responsive to Fed tightening, says billionaire investor Ray Dalio.
That’s billionaire investor Ray Dalio, founder of hedge-fund giant Bridgewater Associates, explaining in a Wednesday post on LinkedIn why the economy isn’t slowing more convincingly despite an aggressive round of Federal Reserve interest rate increases and other monetary policy tightening since March of last year.
Data... “‘There was a big government-engineered shift in wealth from 1) the public sector and 2) holders of government bonds to 3) the private sector . This made the private sector relatively insensitive to the Fed’s very rapid tightening to a more normal monetary policy.‘” “As a result of this coordinated government maneuver, the household sector’s balance sheets and income statements are in good shape, while the government’s are in bad shape,” Dalio wrote.
In the U.S. and around the world, governments ran big budget deficits in 2020 and 2021, and still are, while central banks bought boatloads of bonds. Then in 2022, as inflation soared and unemployment remained low, there was a move toward “less insanely easy fiscal policies,” Dalio said, while central banks moved away from insanely easy monetary policies that had produced negative real bond yields.
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