New Money: Ray Dalio: The World’s Greatest Wealth Transfer Has Begun
The world is facing a massive wealth transfer. It stems from decades of government spending, driving up debt costs. Today, the world faces a debt spiral. That’s due in part to the sheer size of government deficits, which in the U.S. now top $32 trillion.
When interest rates were at zero percent, the debt was serviceable even in a slowly-growing economy. Today, interest rates stand north of 5 percent. And the U.S. government will likely spend close to, if not over, $1 trillion annually funding its debt.
At that level of interest rates, the costs could spiral out of control quickly.
Meanwhile, the private sector is less resilient than it used to be. While personal income is trending higher, the above-average inflation of the past few years hasn’t increased it in real terms. And wage growth has started to slow.
While the economy has largely held up well as interest rates have risen, the impact takes time to play out in the private sector. Investors shifting away from growth stocks for higher income stocks could lead to slower economic growth.
The end result could be a slowing economy, and a government structurally required to spend more and more. That could lead to a big wealth transfer from the private sector to the government, which would significantly lower the standard of living.
Investors can profit from bonds at today’s relatively high yields. And watch out for stocks potentially selling off if it looks like the debt situation is getting out of hand.