Billionaire investor Ray Dalio believes it’s only a matter of time before the Federal Reserve loosens its monetary policies.
In a new Fox Business interview, Dalio says that central banks around the world are losing money due to the high-interest rate environment.
According to Dalio, the rise in interest rates over the past year or so has been costly to a lot of central banks as they have to pay more whenever they borrow capital.
“We have central banks who have lost a lot of money. Central banks themselves have lost a lot of money…
All of them pretty much are not marking those losses to market, but they all have experienced big capital hits to the point of negative capital. In those countries where there are rules about negative capital like the UK, they have to go get capital from the government. That dynamic means that the government then has to come up with more money. That equals in the UK 2% of GDP. So that means the budget deficit is going to be 2% of GDP.
Where do they get the money? They have to borrow the money again or they have to tax it or print it.”
Looking at the United States, Dalio explains how the Federal Reserve is continuing to lose money as it keeps interest rates higher for longer. The billionaire notes that the Fed will eventually have to resort to money printing in order to cover those losses.
“In the United States, it won’t matter much. There will be those losses… But those kinds of losses then create a compounding effect in debt. When you have the losses and you’re producing losses and you have a negative income because of where interest rates are – where short rates are, where long rates are, how they own long rates and they have to pay out short rates – that spread becomes negative. That becomes costly.
And at the end of the day, you print money and that’s the nature of the dynamic.”
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