Europe and Japan need to weaken their currencies further to help revive growth in their domestic economies, according to Ray Dalio, the U.S. hedge fund manager who runs the $160 billion Bridgewater Associates.
Speaking in a panel debate Thursday at the World Economic Forum in Davos, Switzerland, Dalio said the average cost of a European worker, adjusted for their time worked, is about twice that of their U.S. counterpart. That cost will require structural reform, as well as currency depreciation, he said.
“It’s the conversation that it’s not polite to have,” said Dalio, 65, whose firm is based in Westport, Connecticut. “Policy makers can’t talk about changing the exchange rate. So the currency will be a bigger influence in the year ahead.”
Speaking on the same panel, Goldman Sachs Group Inc.’s president, Gary Cohn, said “currency wars” have resulted as global policy makers try to stimulate growth and exports through monetary easing. The European Central Bank will probably announce a 1-trillion-euro ($1.2 trillion) bond-buying program in Frankfurt.
The effect, Dalio predicted, will be a “short squeeze” on the dollar, similar to what happened from 1980 to 1985, as dollar-denominated debt becomes more expensive for overseas borrowers to repay and prompts a dash for the U.S. currency. This time, policy makers can’t lower interest rates to head off the deflationary pressure of falling commodity prices, he said.
“In 1980, if we didn’t lower interest rates -- even though growth was strong -- we would have had a disastrous situation,” he said. “It’s somewhat analogous to that now.”
The dollar has climbed about 4 percent against the euro this year.
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