Keynesian Hedge Fund Manager Agrees With Peter Schiff On Fed’s Next Move

On Wednesday, the founder of the world’s largest hedge fund appeared on CNBC and made exactly the same prediction Peter Schiff has been making for months – the Federal Reserve’s next moves will be taking rates back to zero and launching another round of quantitative easing.

Video Length: 00:04:16

It’s important to remember that Ray Dalio doesn’t share Peter’s economic point of view. He is a classic Keynesian who believes the Fed has done an excellent job. He even claimed that “QE saved the economy.” He and Peter probably agree on very little. But Dalio’s remarks bear consideration because he represents the conventional wisdom of today. He believes in central bank intervention and he recognizes that the current state of the US economy demands more of it. To use Peter’s analogy, Dalio wants the drug addict to get more of his favorite drug, and he believes the Fed will deliver.

The problem last year is that almost all assets in the world went down in value. That can’t go on too long without producing a depression. So that means the central banks have got to ease monetary policy and do the QE.”

While Dalio’s analysis and views on proper policy diverge 180 degrees from Peter’s, his comments unwittingly confirm what Peter’s been saying – the Fed is the source of the problems and it will do more of the same to try to solve them. The Fed created a massive false wealth effect. December’s rate hike was just enough to prick the bubble. Without more QE, the market is going to continue to deflate. Dalio mindset mirrors conventional wisdom and reveals a fundamental truth – once the central planners start messing with an economy, it’s impossible for them to stop.

Highlights from the Interview:

“The risks are asymmetric on the downside, because asset prices are comparatively high at the same time there’s not an ability to ease. That asymmetric risk exists all around the world. So every country in the world needs an easier monetary policy.”

“I think the next major move in Fed policy will be toward a quantitative easing, not toward a tightening.”

“It’s going to be much more difficult this next time…it’s pushing on a string…That means there’s going to need to be fiscal policy with monetary policy. That’s a risky set of circumstances, because politically fiscal policy is controversial. Do you tighten, or do you ease?”

“The problem last year is that almost all assets in the world went down in value. That can’t go on too long without producing a depression. So that means the central banks have got to ease monetary policy and do the QE.”

“This will be a negative for the economy – this market movement – and that will mean, as we look at that, that the Fed should remain flexible. It shouldn’t be so wedded to a path.”

“What a little bit concerns me is the lack of these concerns [on the part of the Fed] six or 12 months ago, because the forces behind it existed six or 12 months ago.”

“I think a move toward quantitative easing would bolster psychology to some extent.”