Hedge Fund Founder Asks: Do You Have Enough Debt-Free Money?

Ray Dalio, the founder of Bridgewater Associates, the largest hedge fund in the world, asserts that currency equates to debt. He suggests that if governments resort to printing money to address debt level issues, thereby devaluing the currency (by increasing the amount of money), they should consider alternatives in the form of debt-free money.

Dalio has previously indicated that we are nearing the end of a long-term debt cycle, anticipating significant shifts in the global order imminently.

We are pleased to share Ray Dalio’s brief essay, “Do You Have Enough Non-Debt Money?”, which was published on his LinkedIn account:

Do You Have Enough Non-Debt Money?

“Good money is both a good means of payment and a good store of wealth, accepted worldwide. Globally, the most recognised and accepted currency is the dollar, and to a lesser extent the euro. The Japanese yen and the Chinese yuan play this role much less. All of these funds are held as debt instruments – that is, they are debt-backed funds. This in turn means that currency = debt. In other words, if you hold these funds, you are holding debt obligations, which means promises to deliver the money to you.

History and logic show that as risks pile up, two things happen to debt. First, it may not be refundable. Second, it may be repaid with money that has lost value. Either way, debt and money lose their appeal. Debts reflect promises to pay money in the future, but if governments have too much debt, the central bank is likely to start printing money. By reducing the value of the currency (or inflation) in this way, the debt spiral is avoided.

Gold, on the other hand, is money that is not backed by debt. It’s like cash, but unlike cash and bonds, which carry the risk of bankruptcy and inflation, the risk of a debt crisis and inflation provide gold with support instead. It is for this reason that both central banks and investors hold it. While gold is the third most-held reserve currency by central banks, it is held more than yuan or yen.

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Cryptocurrencies are also debt-free. I don’t know of any money other than crypto and gold that is debt free. Some people say that gems and art behave in the same way because they are not tied to debt, they are mobile, and they are widely seen as stores of value.

If the financial system works well, i.e. there is no debt and inflation crisis, the borrowing government can meet its obligations without money printing and money devaluation, then debt instruments are a good asset to hold. If the opposite is true, then gold is the asset to own. This is the main reason why gold is a good asset diversifier and why it is in my portfolio.

To be clear, I’m just trying to share my investment thoughts, I’m not giving investment advice […] We’re just trying to convey how the markets work, what to be aware of and how to think strategically when investing.”

Key Takeaways

In conclusion, Ray Dalio’s insights underscore a pivotal shift in understanding global finance and the intrinsic link between currency and debt in economic activity. As the founder of the world’s largest hedge fund, Dalio’s perspective on the role of debt-free money, such as gold and cryptocurrencies, in mitigating the risks associated with traditional debt instruments is particularly significant to encourage economic growth.

His analysis reveals the potential vulnerabilities in the current financial system and financial institutions, characterised by heavy reliance on debt-backed currencies like the dollar (in the United States) and the euro. By highlighting the virtues of debt-free assets, Dalio not only offers an alternative viewpoint. He also encourages a strategic approach to investment in a world poised for major economic transformations in the financial market.

As we navigate these changes, his thoughts serve as a valuable guide for investors seeking stability in an increasingly volatile market landscape.