Bridgewater CIO Warns of Deeper, Longer and “Much More Painful” Recession Than We’re Accustomed to – Economics Bitcoin News

Bridgewater Associates’ chief investment officer has warned of a recession that is “much harder” and “much more painful” than what we have been used to. “The dam has been broken where fiscal policymakers are now part of the story,” said the head of the world’s largest hedge fund.

Bridgewater Executive’s recession warning

Karen Karniol-Tambour, Bridgewater Associates’ chief investment officer, warned of recessions very different from those of the past in an interview with Bloomberg last week. Bridgewater Associates, founded by billionaire Ray Dalio, is the world’s largest hedge fund, with around $130 billion in assets under management.

When asked about the next big risk she sees coming over five to ten years, Karniol-Tambour replied:

The next big risk is recessions that are deeper and longer than what we are used to.

In previous economic downturns, “central banks could just jump right in and reverse it,” she noted, adding that when central banks just eased everything, recessions were “quick and shallow,” not “deep and long.”

She explained that the Covid pandemic was a turning point because for the first time fiscal policy makers became “deeply involved in solving the problem.” In addition to central banks printing money, “politicians basically come in and direct the money to people,” she said, elaborating:

So to me the dam has been broken where fiscal policymakers are now part of the story … They are much more likely to step in with big fiscal expansions.

“Monetary policy on the one hand will be less important because fiscal policy will do what it does,” she described. “On the other hand, they’re going to be in an even tougher spot because they’re going to have much more anchored inflation because of secular inflationary pressures and fiscal policymakers doing stimulus at the same time.” The Bridgewater boss continued:

So they will be forced to tighten much more than they would otherwise have wanted – or ease much less. They become downturns that are much more difficult, much more painful.

“We’re at a place where we’re going to solve a lot of our most important problems, you can’t just rely on market forces, you also need political forces to work,” she stressed, noting that the risks are “exacerbated by how the pace of de-globalization is going to be fast.”

Karniol-Tambour thought:

The biggest wild card here, of course, is how difficult the relationship will be with China, because China is so deeply entrenched in supply chains.

“There is a big difference between having to cut them out modestly or actually decoupling from China. It could be a very inflationary event that significantly worsens this whole environment,” the manager concluded.

Last December, Blackrock, the world’s largest asset manager, similarly stated that we are heading into a recession that is “the opposite of previous recessions”, noting that “recessionary politics” will take over. Mad Money’s Jim Cramer said the market has already decided a recession is coming. However, US President Joe Biden said last week that he does not see the US economy falling into a recession this year or next.

Do you agree with Bridgewater Associates’ chief investment officer? Let us know in the comments section below.

Kevin Helms

A student of Austrian economics, Kevin found Bitcoin in 2011 and has been an evangelist ever since. His interests lie in Bitcoin security, open source systems, network effects and the intersection of economics and cryptography.