[Music] Bloomberg audio Studios podcasts radio [Music] news hello and welcome to another episode of the all thoughts podcast I'm Tracy Alaway and I'm Joe wisenthal Joe have you ever seen those visuals of a trillion dollars where it's like here's 100 here's a $100 bill here's a stack of $10,000 here's a million dollar and eventually you get to 1 trillion and it's just all these pallets of notes that are worth a billion each and they're like covering the size of a football field or something and they're double stacked I I love that I never really know what they mean it's like oh this is as big as the Statue of Liberty or something like that and it's like okay like I mean that is objectively big I get is that a good way to visualize money in terms of what it means I don't know but yes money especially if you use small denomination bills can really pile up uh before you get to real value well okay speaking of big numbers the US budget deficit was about 1.8 trillion in 2024 so if we stick with the visual almost almost two football fields of double stacked pallets of one billion dollar each so okay quite a lot but I think this illust you know we saw those stag pallets know but we didn't see a trillion dollars we saw billions and I think this kind of illustrates one of the really difficult things about finance and debt which is all of us as you mentioned earlier kind of struggle to grasp the scale of these numbers that are involved here and 1.8 trillion seems so abstract that yeah we have to describe it using football field analogies or whatever else and if we can't really grasp the scale of the debt because it's just this big number that no one really understands or even takes seriously then it feels like it's difficult to tackle to solve right well I'll will say two things on that I mean I think a you have to question like at any given point what isn't a Col economy solving for right and so people have anxiety about the size of the debt and the deficit and it's like but you know a time you know there's also High INF also have anxiety about social services yeah and things like that and then there is also the question of you know we think of a household or any entity as like you have to have your money to pay your bills are there other Dynamics besides numbers that cause a financial crisis so for example you could have a country with very high debt to GDP and it's uh uh fine because you know it goes on for longer than people expect and you can have countries with low debts and deficits but because they have an internal political crisis because people no longer have confidence in the government the central bank to pay it back you can have a crisis even at low levels and so even thinking about what does it mean to solve a debt CR uh talk about debt at the national level is simultaneously a financial discussion and one about political confidence a social con conversation all right well on that note I am very happy to say that I think we have the perfect guests to talk about all of these things someone who has consistently had some very big thoughts about these very big numbers we're going to be speaking with doio the legendary founder of Bridgewater the author of numerous books including a new one titled how countries go broke principles for navigating the big debt cycle and most importantly a key player in the invention of the chicken nugget I am very excited Ray welcome to the show wow what an introduction thank you Tracy's good at introduction if it had been me I would have been I would just been like Ray Delio you all know his name let's bring him in but Tracy doesn't especially for a a guest of your stature a you do pretty good too Joe thank you for having so I want to start with the really important stuff so first let me just thank you on behalf of millions of Americans for your contribution to the chicken nugget what did you do exactly when it comes to chicken nuggets what was your role well when I was uh pretty young I started trading Commodities because they had the lowest margin requirements so I figured if I was going to be right and I wouldn't do it if I wasn't going to be right that I would be able to get the most amount of Leverage out of these and so I started trading Commodities before most people started to trade Commodities and then that led me in 1973 when I graduated from uh business school to become a commodity investor sort of and what I did was I was in charge of institutional Futures at one of these brokerage houses and uh that brought me in contact with the mechanics of how hedging and how chickens and Grain and everything works so fast forward I got to meet the biggest chicken producers in the world and McDonald's hired me uh as a consultant of sorts to advise them on how they were going to safely price the Chicken McNugget you see their worry was that if they this was very volatile times then and their worry was if they bought the chicken and they put it on the menu and the prices changed like went up a lot they'd have to change the menu price so they needed to know that they could have stable prices and we talked and I knew that the mechanics of chicken what do you how do you produce it there were little chicks and they didn't cost much and what cost most of the the money to make a chicken was the corn and soy bean meal that they produce as feed to feed them to get them to be big chickens and so on and so I went to one of my chicken producing clients and McDonald's and I showed how this chicken producing client could hedge the price and give them a stable price and because of that they were able to put chicken McNuggets on the menu I love this story from multiple I love the idea of creating a sort of synthetic Financial Chicken McNugget price through the inputs you know I want to say you know for a long time I probably bought into this view that the real creators in an economy are the farmers and The Growers and uh the entrepreneurs who you know come up with a distribution mechanism and it always sort of the the the people in finance are things you know is seen as like oh they're just sort of speculating or betting on that and I've changed my mind over the years and I you know there are many good ideas in the world that people have on paper and labs and so forth that never exist because the financing mechanisms to bring them to place don't exist and so I would say that if you like especially in 1975 when I imagine we didn't in the mid 1970s when we didn't have the same level of easy running computing power in his liquid markets Etc that someone who figures out how to create a synthetic uh McNugget price is as much the inventor of the McNugget as the person who figured out how to you know ball and Fry the chicken H you think I can claim being the inventor of the chicken nugget I know I think that I think that'd be overreaching okay well anyway I I love that uh I love that story all right so I want to get to debt the actual important things so the thrust of the new book it kind of reminds me of one of my all-time Financial favorites which is a history of interest rates by Homer and Sydney and you're kind of taking a similar approach although maybe you're not going all the way back to ancient Babylon or something like that but why did you decide to focus on debt Cycles what's the Allure for you and and what do you learn from from history in 1971 before after I graduated college and before I went to uh business school I clerked on the floor of the New York Stock Exchange and on and I fed the markets I fed the market since I was a kid I first got involved in markets when I was 12 I used to caddy and then it was the time of the stock market and the stock market was very hot and I took my catting money and I did that but anyway that led me to be in on the floor of the New York Stock Exchange um and follow markets and on August 15th 1971 Richard Nixon Sunday night got on the television and told people that the monetary system was going to change that the money that they thought they could get gold was thought of as money then and paper money was like checks in a checkbook didn't have any intrinsic value no value that they would not get because there was a fixed exchange rate and he gave some sort of BS story about why that was which it was really because they didn't have enough gold to back up their money claims and I walked on the floor of the New York Stock Exchange I thought this is a big crisis this is going to be terrible and I thought the stock market was going to go down a lot and I went on the floor and it went up the most in years and I didn't understand that I didn't understand why and so I started to do research and I found that on March 15 1933 President Roosevelt got on the radio and made the exact same announcement for the exact same reason and I studied then why is it that they went up a lot okay you devalue money when you devalue money and you make money very easy things go up and so I learned not just the nature of that mechanic but I learned that things that surprised me in my life often were things that never happened in my lifetime and but they happened in times in history so I studied the Great Depression I figured okay I should study all big things that happened and I studied that Great Depression and as a result of doing that in 208 I was able to anticipate the global financial crisis ahead of it and the reason is is because when you have a debt crisis and interest rates go down and hit zero so they can't go down anymore cutting interest rates anymore is no longer going to work and what I learned from studying this event in 1933 is that when that happens the government prints money and buys the bonds so what happened in 2008 was exactly that and I wouldn't have understood it if I didn't study what happened back then so that changed my whole approach to decision making which is also why I did this study recently and that came out as the book that you refer to you know principles for dealing with the changing world order I needed to study things that hadn't happened in my lifetime so we'll get into it there are things that happening to us in our lifetimes that haven't happened before that you have to go back to the 30s or other periods of time to understand and related to that is this money debt [Music] thing let's talk about the present tense and obviously Tracy in her fantastic intro talked about the size of the deficit last year and you know you see so much about the debt you know there's two things in the in the story you told there's sort of two things that struck me right now which is one is obviously we don't have a form of currency that's quote backed by anything there's nothing to quote run out of that we couldn't made out it's the sort of fiat currency in the truest sense of the word there's also the other thing is you know you mentioned stock surged um because the these moves represented this big fiscal loosening we are in an era in which inflation has been high for several years inflation is still above Target and many people would say the still most persistent issue right now is this issue of too much money and that there is still things are too expensive Etc and so there's still this impulse to Titan so when you think about these lessons that you're talking about then when you look at our fiscal position in 2025 what do you think about what do when you look at our fiscal position what do you see again I think you can tell from the way that I talk I think about the mechanics and how does it work and in answer to your prior question the reason I'm writing this book is because I think that we're at an inflection point and I think that people do not economists and people and mo everybody policy makers don't adequately understand the big debt cycle they understand the shorter term debt Cycles you know yeah things uh econom is weak inflation goes down they make credit available things go up stocks and everything goes up until you get too much and you get inflation then they tighten credit and so on but the big debt cycle isn't understood and yet we're there we're at the the brink of one of these and so what I think about this is that there are really three factors that drive the big debt cycle and I want to convey those great I'm a part of my life that I'm trying to convey those and so okay most people think interest rates go up because of inflation tightness of use of monetary policy but they don't realize that there are limits to debt growth and here's how it happens one man's debts are another man's Financial assets so when you're holding a lot of bonds that's a large percentage of the portfolio that's also a large debt and think of the credit system like a circulatory system that brings nutrients to all of the parts of the body so you give buying power and if that buying power is used to create productivity then what it does is it produc produces incomes that are large enough to pay the debts back and give you productivity and everybody's happy but if the debts are too large and don't produce the productivity you don't have the income that's necessary to service those debts and so in this circulatory system if it's healthy you're seeing incomes rise with the debts and and you're seeing the system work well when debts rise relative to the incomes that are needed to service the debt it's like plaque in the system building up in the circulatory system because it means that first of all you have a Debt Service problem that you have to pay the debt service and that's like plaque in that it leaves less room for spending so for example US government has um an interest bill that's um about a trillion dollars a year and if they didn't have a trillion that didn't have that interest Bill they'd have a trillion dollars more spending and that process gets worse and worse over time in addition one has to roll over the debt that was last accumulating so we have to roll over this year about n trillion a little over trillion dollar of debt that means the new you know you they they get it runs out then uh you have to sell it again and when they have a lot of that debt that's a problem and when you're doing putting a lot more debt on top of that pile of debt so it's not just the existing debt that's a problem but you have to add more debt sales which equals essentially the budget deficit which now is going to be about 75% of GDP you've got to sell those you have to sell those to people or institutions or central banks or Sovereign funds that hold these bonds where they're already holding too many bonds and now um they have to roll them over and you have to sell these new bonds that are coming on and that can be a problem and it can worse than that because if they don't have if they say hey there are too many of these bonds and I've got enough and I don't want to buy it or Worse there could be some reasons uh that they don't want to buy it like for example sanctions okay we're living in a world similar to the 1930s and if I was the Chinese I would worry that what would happen to me might happen what happened to the Japanese in the 1930s which is that we froze their bonds meaning they didn't get their money and so nowadays with sanctions and too many bonds and so on when I calculate who are the buyers and how much do we have to sell I find a big imbalance and I know how that works you know what happens is central banks buy these bonds they print money and buy the bonds and then they lose money on the bonds and you get a negative net worth at the central bank and you get this spiral when you reach the part of the cycle that you have to borrow money to pay debt service and then people the the holders of those bonds say okay it's a risky situation in the private credit Market we call that the debt spiral the debt death spiral because when you have to roll over the debts but it's risky the credit spreads go up and when the credit spreads go up then it adds to The Debt Service and it becomes a spiral that's a problem so the way I calculate it is that we're quite near that point can I just press you on the inflection idea because I think this is one of the things that people really struggle with because it is true the US has a lot of debt and it's true that it's issuing more debt in order to pay down interest but at the same time nothing really bad has happened quite yet and I think there's a sense of call it maybe debt Doom fatigue we've had warnings over the deficit for decades now how do you actually go about figuring out when the cycle will turn or what specific things do you look for as the proximate Catalyst for that inflection point well that that's that's why I wrote my book how countries will go broke that by the way when I say it's a book it'll come out as a book but I've made it free online for anybody who wants to read it and what I wanted to show was the actual mechanics of how that happens so I I hope your listeners will get it and you know it's free it's there for you to start to consider and what it is is a look at that mechanics and the uh signs that you can see that happening and other words first start to do the supply demand analysis simple when that Dynamic I describe starts happening you can see it because the amount that is sold is not bought by the private sector anymore or those other buyers and then the central bank has to come in and uh then print money and make up that difference and then that devalues money so we saw let's call it a palpitation I give this example it's like a heart attack we saw that when in 20120 and 2021 when the government needed in 2020 to send out a lot of money it actually sent out about twice am the amount of money that people their incomes lost or businesses lost they sent out twice as much amount of money then and then in 2021 they did it again without the need but there was a move from a right of Center policy to a left of center policy in which Universal basic income and the desire to do that put out that money and so where did the government get the money from they got it from the central bank that produced the money and sent it out and so everybody's getting all this money and they're surprised that prices went up so okay so you have that wave of inflation that was like a a warning heart attack so what I'm trying to do in that book is show the Dynamics and the mechanics that show how you can calculate what the supply demand is and what will happen at what's likely to happen and what has happened through time so I go back through time and I show these many many cases of it so that you can distinguish it because I'm I'm with you the alternative which has been a problem it you know it's like somebody who's built up their cholesterol and lived this way and they say I haven't had a heart attack and they get that as positive reinforcement and I get to eat chicken McNuggets toio and there we are so the question I have for everybody for those in the administration and for others is that Dynamic which you can see replayed out in there you could see the moment by moment literally month by Monon changes that are symptoms and the indicators that you're having a heart attack an economic heart attack a debt crisis it's shown in that book and the only thing I want to do is first of all say is that logical do you see it and and so in our conversation I can't show you the charts and the numbers and so on but I can tell you and so we should be asking ourselves is that logical has it happened before and then what do we do about it rather than say we don't have to worry about it what does it look like specifically okay we you walk through the math and uh you talk about you know at some point you can talk about supply and demand and is the demand actually there and there have been warnings as both you and Tracy acknowledged for years and you we have these little Tremors or maybe heart attacks and so forth let's say it happens and I don't know what it is but what is the equivalent in 2025 or 2026 or 2027 of Nick suddenly taking us off the gold standard is it and you sort of hinted at it do you see plausibly mixing up with geopolitics in the trade Wars an equivalent of saying we don't acknowledge China's debt that that's not real debt we're freezing it we're paying it off they have no claims to it is that something that you could see happen what does that day look like in your view that day looks like what happened on August 15 1971 but just much bigger what you'll see you'll see the supply demand problem you will see a spike in interest rates a tightening very much by the way these these always happened that happened in 2020 you'll be a subik in interest rates it will show up as interest rates rising and the value of money going down particularly in relation to gold or other currencies perhaps although this is something that will affect all currencies because they'll all be in the same they'll all depreciate again together and you'll see the rates Rising even though the Federal Reserve is easing then you will see the Federal Reserve come in and buy and do another QE and then you're going to see the kind of reaction that you saw back back in 2020 and 21 where not only the inflation component but gold and other asset prices in a sense going up it'll look like that but just to be clear I want to press on this point when that what is the equivalent announcement of a Nixon going off the gold standard in 19 in August 1971 what is that thing today is it do you they won't they won't because because we have a Fiat monetary we can't do it can't be the same it doesn't require an announcement but but what but do you expect there to be a policy announcement of we are no longer paying the debt say owned by China I'll tell you what you will certainly see and then I'll tell you what you will possibly see what you will certainly see is the Federal Reserve coming in and buying a lot like it did and it doesn't have to say an announcement but it'll come in like that like they did in 2008 or like they did in 2020 except in a bigger way but what you might have in preparation for that like in 1971 is certain actions taken to deal with that issue such as extending the maturity of the debt these are possibilities you say you're notay like a default on some people's debt yeah but I think the government would do it such as say that country is going to be sanctioned and therefore to sanction them we are not going to pay the debt that that would be a very classic and and and certainly fireworks should go off in your mind about that that signal I'm not saying it's going to happen but that is one of those things and you could see then the government saying that they're going to restructure the debt they don't say it's a default they will say under this policy we're going to be better off if we we don't Vault default we won't change what you're going to get paid but we're going to spread it out over more years that'll be a restructuring of the debt combined with some monetization of the debt in other words a central bank policy polic where they're buying some of that debt that'll look like that if it gets bad then you could have more extreme things [Music] happen since we're on the topic of major events in the financial system I wonder if you've been following any of the the papers or thought pieces coming out of parts of the Trump Administration and specifically this hypothetical situation of a Mara Lago Accord where the US basically gets a weaker dollar and also gets to maintain its special status in the Global Financial system what do you think about the possibility of the US restructuring the entire system so as to further benefit itself I think that that's a real possibility and it's and it's done semis secretively but I want to be clear what that's like I don't think it's a depreciation of the dollar in relationship to all other currencies I think all other currencies will depreciate with the dollar in other words it's up to each Central Bank and pretty much in terms of other currencies it's an ugly contest you know there's the Euro and the European situation which is terrible there's the Japanese Yen they have a huge amount of debt which they're monetizing and so on there's China's REM andb and that's not going to be a safe storeold of wealth and none of those currencies are going to sort of be what you'd call strong so I think it would be very much like the 1970s which was very much like the 1930s in which they all go down in relation to gold or other hard assets uh like that and you know what is the alternative money will be the question what's the alternative of money that is stable in Supply B Bitcoin might be a bit part of that could be a big part of that but what is the alternative money because debt is money and money is debt when I say debt is money debt is money to come you're you're holding this and people are going to give you money and money is stored in a debt instrument when you're holding your money you're putting it in a debt instrument so they're one and the same when you have too much debt it goes down so I would think it's more like uh gold Bitcoin what is the alternative money money has two purposes right a medium of exchange and a stor hold of wealth as far as a medium of exchange it can keep working as a medium of Exchange in Germany's Yar Republic or Argentina uh recently you can you know you can carry B barrels of wheel barrels of money and it's you could still exchange it so they had so much that they couldn't count it so they waited this is literally the case so the money will can be used for medium exchange but as a stor hold of wealth it's not going to be used and people will look for other stor holds of wealth that are movable and tradable so like in the 30s and then the 40s what did countries do with each other they're not going to trust that the other country is not going to print the money or do that so they exchanged gold because gold has the attributes it's limited in Supply it's not easy to manufacture and throughout history it's been held by central banks it's used it today gold is the third largest reserve currency it's the dollar then the Euro then gold and then the Japanese Yen and so that's why I'm saying I think that in that particular Dynamic you say well what is it that's the storeold of wealth and you see and I emphasize gold but Bitcoin too has elements um uh of that it's not real estate because real estate is nailed down you have a problem with real estate real estate is nailed down you can't move it around you can't it doesn't work that way it's very interest rate sensitive so when interest rates go up it hurts it it's also very easily taxed because it's not moved you can easily tax it so it's not like it could be exchanged so there's a very limited number of alternative monies so you know when people say something like a maral Lago Accord and they hearkened back to the plaza Accord that was clearly about we want a weaker dollar because we want it weaker against other Fiat currencies for the virtue of strengthening American manufacturing what you're saying then is that it couldn't work that way this time we can't think in such a tight analog because it's not going to weaken just against other currencies it'll weaken against hard assets just real quickly if we were if we had you on the if we had had you on the podcast in 2015 we were talking about something else are you more exposed in some way more bullish on gold today in 2025 due to this than you were say if we had been talking to you 10 years ago oh uh yes I think the gold and I'm not trying to harp on gold and I don't want people run out and go by they will though they will but keep going okay so let me let me restrain them okay I I want to restrain them I want to say what you don't know about the fure future is far greater than anything that anyone knows about the future so we always have to be humble what what you need is a proper diversification to create a portfolio and what that means is if you look at gold gold does well when those other assets that you're typically holding in your portfolio don't do well in such a crisis okay so if you're holding a let's say a lot of bonds or those types of of things the optimal amount in a typical portfolio is in the vicinity of a little bit less than 15% like if you didn't know you would hold but let's say it's 10% okay a prudent amount uh that kind of little bit of gold serves as a protection and diversifies the portfolio and what you I think the most important thing is that you don't have much of an exposure I'm not on this show to tout gold and I don't and I want to restrain people but it's also keep in mind in investing what happens is the biggest problem of most investors is that they believe that whatever has been the best investment over the recent past is the best investment not that it's become expensive and become too expensive go down and so there's a tendency of portfolios to and investors to hun to invest when you things become terrific so by way of example let's say AI companies and you know companies like that well the thing I want to convey to investors is that the idea that what's been going on is a good what's gone up a lot and really done well is a good investment rather than it's become expensive is something they have to watch out for and that the best company is no more the best investment right than the best horse in a horse race is the best thing to bet on because there are odds and hurdles that are based into the price so if you're going to bet on a horse and a horse race you have an equal likelihood of betting on the worst horse to do the best to to to win on because the odds are shifted the discount and you know that might be the 50 to one shot and and so that the markets are like that it's like a football game you have to beat the this the spread so um that dyamic means that you should balance most the thing I will really convey to your listeners is that knowing how to balance your portfolio well is a very important thing this is the most important thing because what you know is you know you can't be certain about and you can reduce your risks without reducing your expected returns if you do that well and that gold is a part of a portfolio so if if I'm giving some thoughts about a portfolio I would say uh diversify well gold is an effective diversifier and at a time when there's an ex you know let's say too much debt you can also rephrase that and say too many bonds and they're going to be a lot more coming might be considerations but I I don't want to start giving portfolio advice what I want to do is let people know and let really the policy makers know that there's a solution here I mean there's a right thing to do we're talking about all the difficult things and I want to emphasize that this can be doable okay you can lower that deficit to go to 3% of GDP Trump tax cuts come in the projected deficit will be about 72% of GDP and you have to cut that to about 3% of GDP because that'll mean that debts won't rise relative to incomes and it'll greatly improve the supply demand so what I want to do is contribute by showing what can be done and in fact that was done in from 1992 to 1998 there was a 5% in GDP cut in the budget deficit so that's what I'm talking about going from a 4% you know let's say seven seven and a half down to three is a four or five% cut as percentage of GDP that did happened from 1992 to 1998 and can be done and so I want to talk about those things that can make a big difference so on this note how do you actually go about building consensus for all these moves because it does feel like part of the problem here is there is a lot of disagreement about what debt should be used for you know should it fund more defense should it fund tax cuts should it be used for more social programs or infrastructure or something like that and then there's an added layer of disagreement about how debt Dynamics actually work and when they matter and I appreciate that part of your book is this effort to show how debt actually operates but there's still so much disagreement how do you actually go about you know getting people to agree on what debt is how it works and then do something about it how I'm trying to do that is um first of all show people the 3% solution and make them aware make those in Congress and president aware that they need to get it down to that 3% and that arguing about how they do it leading to them not doing it is very much like taking somebody who has a serious heart problem and and so on and you could say okay you can exercise you can eat this different way you can do this and so on and this is the and you can do it and in fact if you do it if you get the deficit down you will get also lower interest rates and because your interest expenses are so high those lower interest rates will also contribute to your Better Health and in fact those lower interest rates will help to cause asset prices to go up and the economy to be better which will also give you tax revenue so that you can do this but you're arguing about which way to do it will will probably prevent you from doing it so you should start off and take the 3% pledge first have it your mind what is the goal 3% of GDP the budget deficit okay we all agree can we all agree that we need to do that okay or if we can't agree look at the look at the numbers look at the story I'm telling you but please uh you know agree that at least if you can say I agree on the number we'll take the 3% of GDP pledge and then you what you have is don't let the particular ular arguments I don't care if you do it proportionately across things if you took every item that you uh can change that contributes to that increase in taxes cut spending if you just did everything proportionately and you use that as your backup if we can't reach agreement we will do it all proportionally across the everything great that's I mean the better way to do it but at least you did it but if you don't do it so you're going to be in trouble so that's the reality because it will be P public uh conflict and and it probably won't happen so that's that's a choice if you don't do it then take the responsibility say to yourself if if you don't do it and there's the crisis that I'm saying is will come and I can't tell you exactly when it'll come it's like the heart attack I can't tell you exactly I'm getting you're getting closer my guess would be three years give or take a year something like that okay if you don't do that and then you own it okay that you have to take responsibility for the consequences and if you say okay I got three this 3% solution I'll find it and and yes own it because you will I mean when the economy and this heart attack of sorts comes along then you're going to find yourself that the voters are not going to be very happy so you own it treasury secretary Scott bessent is verbally on board with what you called the 3% pledge he also talked about 3% GDP growth I think a 3% increase or maybe more more oil extending the tax cuts permanently is that consistent at all with the 3% pledge or do the extending the tax cuts permanently increase the chance of this economic heart attack it depends on the whole dynamic of whatever is done and I mean this in the following way you can get tax revenue that's what matters it's not necessarily the tax rates raising tax rates is going to get you the same tax revenue VES because if the economy is healthy and then it depends there's a whole mechanical thing how interest rates operate and so on the whole mechanics you can bring in more tax revenue a good model to look at was 1992 to 1998 in which there's a mix of things that happen you can see the Right Mix the Right Mix is going to include those things that will naturally in a healthy way lower interest rates and and help the economy and so on it's not a perfect solution but it's go to that 1992 to 98 period as an example in my book I give I give many examples the best mix is to properly mix depressing moves with stimulative moves what I call a beautiful deleveraging what I mean by that is that if you raise taxes or lower spending that's depressing on the economy however if you do that with an easing of monetary policy so which is stimulative on the economy those two things can balance and they either of them lowers the debt to income ratio so but they can balance each other and that's a well engineered move so I want to go back to uh the question that Joe was asking a little bit earlier and perhaps ask it in a slightly different way but when it comes to taking action on this specific risk you said earlier that you have made a lot of money by being able to understand debt Cycles specifically in 2008 can you give us some examples of Trades that you have undertaken in your you know very long Financial career that have been successful and get really specific into it because I think this is one of the the things that people struggle with we can talk about diversification and managing your risk but it's very hard to come up with the specifics of the trade before 2011 what I saw was there was a leveraging up so a big sign is debt is increasing much faster than incomes and that's not sustainable and what limits it and back then I calculated that who was buying the debt that was increasing at a fast rate and that was number of entities but most importantly European banks that were leveraging up to buy the debt and as they leveraged up I saw that they were going their Capital require requirements and their Capital limitations would mean that they could not buy once they were leveraged up they could not continue to buy at that same pace and therefore their purchases were going to go down their Holdings would be the same but their purchases were going to go down at the same time as I saw that budget deficits would be large and therefore Bond sales would be large and I saw the mismatch so okay there's a mismatch so now what is the mechanics of of that mismatch that means you know get out of credit risk get out of credit risk Equity risk and so on and that's an example Ray doio such a pleasure to uh have your time maybe you're not the creator of the chicken nugget maybe the Father the the uncle of the chicken nugget but also Bridgewater and numerous books thank you so much for coming on odlot thank you for having me thank you Ray that was an absolute pleasure you guys know what you're doing thank you it was a pleasure for me producers keep that in yeah keep that in [Music] Joe that was that was so much fun I'm glad we finally got to interview Ray Delia I swear it could have we could have done an hour on the the we could done like five hours no I mean we could have done an hour yeah easily because I just think about that you know it's not a time when everyone had like tons of access to computing power and so even the idea of how you I mean it's so silly right we just talk about oh the US might have this uh economic heart attack in the next three years go by gold and by Bitcoin but I still am thinking about the chicken nugget and how it would not have been trivial to come up with an a synthetic chicken nugget future in 1975 and I do think that we should remember that Financial engineering is a form of engineering to bring physical things into the real world no absolutely and also insurance is a big player here as well and I would and one more thought for me on the chicken nugget real quick no keep going and I would argue that insurers are becoming a more important I guess a shaper of worldwide Norms right like they are the ones that are making decisions about what is acceptable but anyway these are all big picture thoughts on other things we should talk about debt yes and you know look I think I mean there's a few quick thoughts that I have you know getting a bunch of people to say we believe that a healthy level of deficit to GDP is 3% that in alone doesn't sound hard you know but then it's like oh you know but we we're very reluctance to cut anything of substance and we're also want to make the tax cuts permanently seems kind of hard to square but you know we'll see and then just this idea like it seems very clear that Ray is you know he didn't give us an exact number but uh the gold and so he mentioned Bitcoin multiple times the other thing I'd say on his point about this question of who will buy all the US debt yeah there are plenty of people who have pointed out this problem before and I'm thinking back specifically to JP Morgan and they did a a research note back in 2022 basically all about this and they pointed out that in 2022 something really unusual happened which is we had all three major buyers for US debt so commercial Banks foreign governments and obviously the Federal Reserve itself all step back from that Market at the same time so it seems like an issue on the other hand you know the US can in theory Force Banks to buy more US debt they can change the regulations and do it that way that's sort of financial repression way so I don't know Ray mentioned restructuring so it's like you have a fiveyear note and then it's like oh Suddenly It's a 10year note but we're not going to call it a default but of course you know these sort of these are defaults we might not call them as such but if you expect to be paid back over five years and it's 10 years you're functionally defaulting you know I will say look if you have a huge tax cut that's a bunch of rich people who have more cash in the bank and one place that cash in the bank goes to is Investments and one form of investment is bonds so you increase the amount of money that's in the household sector Etc I don't know I like um I like these types of uh conversations and you know he said one to three years if there is no uh meaningful reduction in the deficit for this timing of the heart attack so maybe we'll have Ray on again in 2031 and say did what uh what happened we'll do it all right shall we leave it there let's leave it there this has been another episode of the OD Lots podcast I'm Tracy Alaway you can follow me at Tracy Alaway and I'm Joe WTO you can follow me at the stalwart follow our guest r IO he's at Ray Doo and of course check out his new book which you can find for free if you want to buy it how countries go broke follow our producers Carmen Rodriguez at kman arm- Bennett at dashbot and kale Brooks at kale Brooks for more Odd Lots content go to bloomberg.com odlot where we have a daily newsletter that you can sign up to and check out our Discord where you can chat about all of these topics including macro including gold including Bitcoin discord.gg odlot and if you enjoy en all thoughts if you like it when we get really philosophical on debt then please leave us a positive review on your favorite podcast platform and remember if you are a Bloomberg subscriber you can listen to all of our episodes Absolutely ad free all you need to do is find the Bloomberg channel on Apple podcast and follow the instructions there thanks for listening [Music] oh [Music]