Ray Dalio heads the world’s largest hedge fund firm, Bridgewater Associates, where has a stellar track record of outperformance. In a cover story Q&A in this week’s Barron’s, Dalio explains in an extremely clear manner why he believes the U.S. is currently undergoing what he terms a ‘beautiful deleveraging’ process, while Europe struggles under its ongoing debt crisis. On the latter, Dalio makes a fascinating comparison to America between 1776-1789:
In 1776, the colonies declared independence from Great Britain. We didn’t have a country. We had independent states that had a treaty with each other, called the Articles of Confederation, and it was similar to the Maastricht Treaty that created the European Union and the euro currency. The independent states had debt problems and they had tariffs with each other. It wasn’t until 13 years later, 1789, that those states started to form a central government, largely because of their debt problems. There was a constitutional convention, and we formed a country and we chose a president. We formed a treasury and imposed central taxation. That gave us the ability to produce revenue for the country and restructure our debts. There was the ability to have taxation and to issue bonds and to borrow. Europe does not have an ability to borrow. It doesn’t have central taxation, that’s material, and it doesn’t have a treasury. It is a collection of countries operating for their own individual needs.
Read the whole thing (this one’s free) for more of Dalio’s thinking, including his current investing outlook. He’s the sort of highly articulate broad macro investor from whom anyone can learn.
