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Tags: bridgewater | dalio | us | deleveraging

Bridgewater's Dalio: US Deleveraging Is 'Beautiful'

Sunday, 20 May 2012 02:30 PM EDT

The U.S. is doing a superb job with the way it's paying down debts and managing its economic recovery, says Ray Dalio, head of the Bridgewater Associates hedge fund.

There are three ways to pay down debts, dubbed deleveraging in economic circles: austerity measures such as spending cuts; debt restructuring, under which creditors are asked to get paid less or paid over a longer time frame; and loose monetary policies designed to prop up the economy until it can stand on its own two feet.

The U.S. is not relying on any one tool but rather, on all three which is why the world's largest economy is pushing through the post-recession era better than most.

Editor's Note: Obama Donor Banned This Video But You Can Watch it Here

"A beautiful deleveraging balances the three options. In other words, there is a certain amount of austerity, there is a certain amount of debt restructuring, and there is a certain amount of printing of money. When done in the right mix, it isn't dramatic," Dalio tells Barron's.

"It doesn't produce too much deflation or too much depression. There is slow growth, but it is positive slow growth. At the same time, ratios of debt-to-incomes go down. That's a beautiful deleveraging."

The Federal Reserve may inject a fresh shot of liquidity into the economy soon via bond buybacks from banks, a measure known technically as quantitative easing but dubbed by many as printing money out of thin air, but after that the economy will recover on its own.

"We're in a phase now in the U.S. which is very much like the 1933-37 period, in which there is positive growth around a slow-growth trend. The Federal Reserve will do another quantitative easing if the economy turns down again, for the purpose of alleviating debt and putting money into the hands of people," Dalio says.

Since the downturn, the Fed has pumped $2.3 trillion into the economy in two rounds of quantitative easing.

Don't expect government spending to taper off any time soon and do expect tempers to flare, Dalio adds.

"Governments have to spend more when sales and tax revenue go down and as unemployment and other social benefits kick in and there is a redistribution of wealth," Dalio says.

"That's why there is going to be more taxation on the wealthy and more social tension. A deleveraging is not an easy time. But when you are approaching balance again, that's a good thing."

Treasury Secretary Tim Geithner recently defended government spending programs, pointing out that spending cuts alone won't get the economy growing again amid a time of economic uncertainty, a deepening European debt crisis and rising competition from abroad.

"These challenges can only be met with an economic agenda that focuses on strengthening economic growth, investing in education and innovation so that we are expanding income growth and opportunity, and a balanced approach to restoring long-term fiscal sustainability," Geithner said in a recent speech in Baltimore.

"These challenges cannot be solved by an economic agenda of severe, immediate austerity, combined with deep, permanent cuts in education and the safety net for retirees."

Editor's Note: Obama Donor Banned This Video But You Can Watch it Here

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Sunday, 20 May 2012 02:30 PM
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