While not even Steve Mnuchin seems entirely clear on what he meant when he said in Davos that he and the Trump Administration aren't really concerned about the strength of the dollar, and maybe even kinda like it weak sometimes, the vast majority of those involved in the global economy have responded with confusion, worry and some verbal form of "What the fuck is coming out of your weird mouth, man?"
And unfortunately for the least-qualified Treasury Secretary in modern American history, the world's foremost expert in telling people that they just said something dumb was listening...and Ray Dalio likes to share his opinions:
Regarding Treasury Secretary Mnuchin’s comments about the administration’s weak dollar policy, I want to make sure that you understand what having currency weakness means—most importantly, it is a hidden tax on people who are holding dollar-denominated assets and a benefit to those who have dollar-denominated liabilities.
Now, Ray is using the royal "you" here, because he's pretending to address his LinkedIn followers, but he's really talking at the man in charge of the US Treasury Department and hoping that a solid, radically transparent lecture will penetrate whatever goes on behind those Transition Shades. And this being Ray, there is no attempt at talking down to his "audience"...
More precisely, a weak currency:
- Reduces the currency holder’s buying power in the rest of the world (e.g. dollar weakness reduces Americans’ buying power relative to foreigners’ buying power)
- Devalues the debt denominated in the weakening currency, which hurts the foreign holder of that debt
- Supports prices of assets denominated in that currency (because of the currency weakness), giving the illusion of increasing wealth
- Raises a country’s inflation rate
- Stimulates domestic activity
That's right, Ray Dalio is saying "Let's make this easy, Secretary Mouthbreather. I'll use bullets." And no, he's not done Bridgewatering a guy who wouldn't have lasted 48 hours of employment at Bridgewater...
None of this is what the U.S. economy needs now.
Translation: "Can you put Gary Cohn on the phone...forever?"
And then Ray delivers the real lesson...
While it’s described as a desirable and intended thing, it might not be a choice. The size of dollar holdings of reserves (in dollar-denominated debt) and the dollar’s role as the dominant world currency are anachronisms and large relative to what one would want to hold to be balanced, so rebalancings should be expected over time, especially when U.S. dollar bonds look unattractive and trade tensions with dollar creditors intensify.
Ray could have re-created the effect of this last paragraph by embedding Kendrick Lamar's video to "Sit Down," but this is also an effective way of telling the sitting US Treasury Secretary to "Sit down, bitch, be humble."
While this post stands on its own, it's worth taking note that Ray Dalio clowning on Steve Mnuchin was inevitable. Dalio is -despite whatever else one might think of him- a champion of good ideas above all else. He despises fakery, insincerity and dumb politics. Mnuchin has proven himself to be a guy who drafts behind stronger thinkers in order to move forward, is baldly political and has never met a position he couldn't reverse if the moment called for it.
And take a moment with this thought experiment: What's a single economic idea or belief that you associate with Steven Mnuchin?...Yeah, that's what we thought.
Mnuchin’s Comment on the Dollar [Ray Dalio vis LinkedIn]