Bridgewater CIO warns of deeper, longer and ‘much more painful’ recession than we’re used to – Economics

Bridgewater Associates’ co-chief investment officer has warned of a recession that is “much harder” and “much more painful” than we’re used to. “The dam has burst where fiscal policy is now part of history,” said the head of the world’s largest hedge fund.

Bridgewater Executive recession warning

Karen Karniol-Tambour, co-chief investment officer at Bridgewater Associates, warned in an interview with Bloomberg last week that recessions are very different from previous times. Founded by billionaire Ray Dalio, Bridgewater Associates is the world’s largest hedge fund with approximately $130 billion in assets under management.

When asked about the next big risk she sees in the next five to 10 years, Karniol-Tambour replied:

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

In previous economic downturns, “central banks could just step in and reverse it,” she noted, adding that recessions are “quick and shallow” rather than “deep and long” when central banks just eased everything.

She explained that the COVID-19 pandemic was a turning point because, for the first time, fiscal policy had become “intensively involved in solving the problem”. In addition to central banks printing money, “basically policy makers come in and push the money to the people,” she said, elaborating:

So for me the dam is broken where fiscal policymakers are now part of history… They are much more likely to intervene with large fiscal expansions.

“On the one hand, monetary policy will be less important because fiscal policy will do what it does,” she said. “On the other hand, they will be in an even more difficult position because they have a much more entrenched stance due to secular inflationary pressures and simultaneous fiscal stimulus inflation will have.” The Bridgewater executive continued:

So they will be forced to tighten a lot more than they would otherwise have wanted – or to loosen a lot less. These become recessions that are much more difficult, much more painful.

“We’re in a place where we can solve a lot of our most important problems, you can’t just rely on market forces, you need political forces to work,” she stressed, noting that the risks “through that How fast will the pace of deglobalization be exacerbated.”

Carniol Tambour said:

The biggest joker here, of course, is how difficult the relationship with China becomes because China is so deeply embedded in supply chains.

“There’s a big difference between having to modestly take them out and actually decoupling from China. This could be a very inflationary event that will significantly exacerbate this whole environment,” the executive concluded.

Similarly, in December of last year, Blackrock, the world’s largest wealth manager, declared that we were heading for a recession that was “the opposite of previous recessions” and noted that “recessionary politics” would prevail. Mad Money’s Jim Cramer said the market had already decided a recession was coming. However, US President Joe Biden said last week that he does not see the US economy slipping into recession this year or next.

Do you agree with Bridgewater Associates’ Chief Investment Officer? Let us know in the comment section below.

Kevin Helms

As a student of Austrian economics, Kevin discovered Bitcoin in 2011 and has been an evangelist ever since. His interests lie in Bitcoin security, open source systems, network effects and the interface between economics and cryptography.

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