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Why "cheap money" is worrying billionaire US investor Ray Dalio
Just days ago, the US national debt topped $30 trillion for the first time in history. Household debt jumped by $1 trillion last year, the most since 2007.
For Ray Dalio, the billionaire head of the world’s largest hedge fund, rising debt across the board is a big problem because it's increasingly widening the gap between all the money out there and what it can buy.
“If the quantity of money and credit, which is buying power, increases faster than the quantity of goods and services and financial assets, that the prices of goods, services and financial assets will rise, [and] the value of money will go down."
Um, okay, so what does that mean if you're not an economist? Once the value of putting money into even very safe instruments like bonds starts to decline, he says, return on investment could become negative, so you lose money.
What's more, if you already expect long-term high inflation, Dalio anticipates a supply-demand imbalance that'll hurt the US dollar's status as the global reserve currency. Also, it's not just an American problem: the euro and the Japanese yen are in similar danger.
And who benefits from a weak dollar? China's yuan, which Dalio says will become "digital gold."
Watch his interview with Ian Bremmer on the upcoming episode of GZERO World.
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How did we get to today's supply chain mess?
The supply chain mess is hitting all of us. Inflation is now the highest it's been in over 30 years.
The costs of food, gas and housing are going through the roof. What's more, almost everything made outside of America is now in short supply — like semiconductors for our cars.
Why is this happening? A lot of it has to do with the pandemic. Asian factories had to shut down or thought there would be less demand for their stuff. So did shipping companies. But then online shopping surged, and now there's a lot of pent-up demand to spend all the cash we saved during COVID.
But it's not just the pandemic. Before COVID, companies kept limited inventories to save costs and fatten up profit margins. And now we're all suffering the consequences.
Watch this episode of GZERO World with Ian Bremmer: Inflation nation: What's driving US prices higher?
Subscribe to GZERO on YouTube to be the first to see new episodes of GZERO World with Ian Bremmer: https://bit.ly/2TxCVnY
The shipping container shortage that’s wreaking havoc on the global supply chain
Spare a thought for the poor shipping container, responsible for most of the world's trade. It's had a rough year that started with the gargantuan Ever Given getting stuck in the Suez Canal.
Now the Suez traffic jam has gone global.
When the pandemic started, everyone needed COVID supplies from China. Chinese factories couldn't keep up with soaring demand from Western nations, and empty containers started to pile up in faraway ports.
Sending one of these ships from Shanghai to Los Angeles has jumped more than ten-fold from $2,000 to $25,000.
And as demand increases even more, the problem is getting worse — a vicious cycle with no end in sight just as the holidays approach.
Watch this episode of GZERO World with Ian Bremmer: Inflation nation: What's driving US prices higher?
Subscribe to GZERO on YouTube to be the first to see new episodes of GZERO World with Ian Bremmer: https://bit.ly/2TxCVnY
How economist Larry Summers predicted US inflation
Back in February, Larry Summers was sounding the alarm bell about inflation when no one was talking about it.
"It seemed obvious to me that we were gonna have massive demand, and we weren't gonna have such large supply."
So why didn't anyone listen to him? Summers says that "cognitive biases" led many to ignore the inflation warning signs because they thought struggling families needed help, or believed that inflation was simply gone for good.
Part of the reason prices are rising so much today, Summers says, is because the Biden administration made the political decision to do "too much stimulus," a big mistake in his view.
Watch this episode of GZERO World with Ian Bremmer: Inflation nation: What's driving US prices higher?
Subscribe to GZERO on YouTube to be the first to see new episodes of GZERO World with Ian Bremmer: https://bit.ly/2TxCVnY