Photo: CFR screengrab
Hedge fund god Ray Dalio, who runs the highly successful Bridgewater Associates, spoke at the Council on Foreign Relations this morning with CNBC anchor Maria Bartiromo.The discussion covered a gamut of issues with Dalio giving long-winded answers on topics such as the U.S. debt, gold, China and the eurozone crisis, just to name a few.
When asked about how Europe will play out in the next couple of years, here’s what he said: (emphasis ours)
“It’s going to be very similar to most parts of southern European countries as a classic lost decade very similar to the Latin American debt crisis for Latin America. Means I think we’re at the early stage of a major deleveraging in those countries, so that will produce a depression kind of environment. What I mean by that, we will have, go back to spending. Spending is a certain amount of money and credit. There’s a limit to how much money. So now we take the credit. Credit comes from private sector credit. Private sector credit typically comes through banks. There will be a bank deleveraging. There is going to be bank deleveraging. We are in the early stages of a bank deleveraging. There will be some recapitalization of the banks, but we are coming into an environment that there will be lots of controls and there will be a deleveraging in the private sector through the banks. And then in the public sector there will be a deleveraging because there has to be deleveraging in terms that you can’t continue to run the deficits. There will be the equivalent of the IMF type of program. It will be the equivalent of the Troika. So we are going to go through, if you look at Latin America type of deleveragings, or different types of deleveragings we’ve been through. The Troika will manage those deleveragings, so they will take over the controls of the banking systems. We are in the early stages of that. And so the conditions will be very bad for those countries. The marginal amount that they will be bad it will mingle in with monetary policy, a mix of the deleveraging, debt restructuring and certain amount of monetization. I think there will be that kind of mix. The question becomes really a social question, ‘How the tolerance for those types of conditions is then dealt with?’ If it’s dealt with well socially that becomes a test of the character of the people. We have a capacity to get through these things if we have the capacity to not have such conflict, that itself becomes a terrible things. I think we are going to have a bad set of economic conditions….”
Watch the full hour-long interview below:
NOW WATCH: Money & Markets videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.