The “D” Word:
Reluctantly, cautiously, Ray Dalio admitted that he believed that, among other things, personal distancing and shutting down non-essential businesses had put the U.S. economy into a depression. He thinks it will be years before we reach the pre-pandemic economic levels. Further, he predicts that unless we fundamentally adjust our capitalistic system, we will lose it in some form of revolution.
"I'm a capitalist. I believe in the system. I believe you can increase the size of the pie and you could divide it well."
Dalio draws a direct analogy with the 1932 depression. He does not seem to be very confident that we will respond forcefully or effectively.
Far Worse Than 2008
When asked to compare to the great recession, Dalio explained that tools that the government had for monetary policy corrections are limited now. He suggested that they can only do what the government is trying to do now, which is getting money into the hands of small businesses and employees. Even so, that will be a drop in the bucket.
There are two types of businesses that will do well during the extended recovery once we begin working again. The stable fundamental companies (Dalio calls them the meat and potatoes kind) that carry little to no debt and the innovators who will take advantage of the changing needs on the other side of the economic tsunami.
Algorithmic Process Won’t Work for the Economy
Since we don’t have a deep understanding of the global economic cause and effect equation, we cannot model or predict the global financial situation. The world is fragmented, and the recent changes in the geopolitical power distribution make it next to impossible to predict the economy on a worldwide basis.
Now we are restructuring our capitalist system. By definition, the debt we have forced on ourselves to prop up our economy will increase the speed of restructuring. Part of the changes will be a need to change our education system. We no longer need the “be quiet and follow instructions employee.” We need employees who think and innovate.
Dalio also points out that those who can spot the significant shifts, which have already happened in many sectors of our economy and adapt to the new reality quickly, will be the survivors. Those who wait for things to get back to “normal” will most likely not survive.
The first question for business leaders is how to stay afloat until we can begin slowly working our way back to positive cash flow. The second question is how to change the business model and products or services to take advantage of the changes forced on the markets by the Covid-19 pandemic.
Many states are cautiously opening for business. So it is not too early to think about how to break into the new economy. It’s like being a startup all over again!