Ray Dalio, founder and head of the world’s largest hedge fund, took a deep dive into the inner workings of the US economy, and did not like what he saw there.
Dalio, CEO of Bridgewater Associates, which manages $160 billion, posted on LinkedIn, the social media business networking site, his findings on the current state of the US economy, and it looks scary.
He begins by dividing the US economy into two broad categories: the 40% at the top, and the 60% at the bottom. The reason he divided up the economy this way is to more easily see that the headlines we are reading everyday are describing a robust, growing economy, the truth is something quite different. To get a more accurate view, one must see what is happening with the 60% at the bottom. The following bad news is taken straight from Dalio’s message on LinkedIn:
- Real incomes have been flat to down slightly for the average household in the bottom 60% since 1980 (while they have been up for the top 40%).
- Those in the top 40% now have on average 10 times as much wealth as those in the bottom 60%. That is up from six times as much in 1980.
- Only about a third of the bottom 60% saves any of its income (in cash or financial assets).
- Only about a third of families in the bottom 60% have retirement savings accounts—e.g., pensions, 401(k)s—which average less than $20,000.
- For those in the bottom 60%, premature deaths are up by about 20% since 2000. The biggest contributors to that change are an increase in deaths by drugs/poisoning (up two times since 2000) and an increase in suicides (up over 50% since 2000).
- The top 40% spend four times more on education than the bottom 60%.
- The average household income for main income earners without a college degree is half that of the average college graduate.
- Since 1980, divorce rates have more than doubled among middle-aged whites without college degrees, from 11% to 23%.
- The number of prime-age white men without college degrees not in the labor force has increased from 7% to 15% since 1980.
Dalio includes a warning that the “stress between the two economies” will “intensify over the next 5 to 10 years” due to inevitable demographic and technological upheavals.
Not knowing the differences between the two economies has caused the Feds to raise interest rates, a move Dalio believes is a mistake. Taking the average of the unification of the two very different economies could “lead the Federal Reserve to judge the economy for the average man to be healthier than it really is.” He added that this could lead the Fed to implement “an inappropriate monetary policy.”
“Because the economic, social, and political consequences of an economic downturn would likely be severe, if I were running Fed policy, I would want to take this into consideration and keep an eye on the economy of the bottom 60%,” Dalio noted.