Ambitious government spending raises the risks of inflation and a devaluation of the U.S. dollar, Ray Dalio, founder and co-chairman of Bridgewater Associates, said Tuesday during The Wall Street Journal’s Future of Everything Festival.
Mr. Dalio said the Biden administration’s economic agenda, which includes the $1.9 trillion Covid-19 relief bill signed in March and a proposal for $2.3 trillion in infrastructure spending, risks creating a bubble with too much money flowing into the economy. He also predicted there wouldn’t be enough demand from bond buyers to purchase new government debt, which would lead the Federal Reserve to continue its expansionary policies.
“The big issue is the amounts of money that have been produced and put into the system,” Mr. Dalio said. Such risks have to “be balanced carefully. Productivity is the key” to keeping the economy from overheating, he said. Mr. Dalio said he has spoken with Biden administration officials but declined to elaborate.
He described current stock-market valuations as a bubble, though not one driven by debt.
“There’s two types of bubbles,” Mr. Dalio said. “There’s the debt bubble when the debt time comes back and you can’t pay for it, and then you have the bubble bursting. And the other kind of bubble is the one where there’s just so much money and they don’t tighten it as much, and you lose the value of money. I think we’re more in the second type of bubble.”
