“If you say by law ‘Don’t invest in China,’ or even possibly withholding the payment of bonds that the United States owes payment on in China — these things are possibilities, and they have big implications, such as for the value of the dollar”, Ray Dalio said Sunday, during an interview with Maria Bartiromo.
Dalio’s remarks came on the heels of a week that saw Sino-US tensions escalate materially, after the Trump administration closed the Chinese consulate in Houston. That prompted an in-kind response from Beijing, which ordered the US mission in Chengdu shut, rendering the US deaf to developments in Tibet.
That was hardly the end of it. The US also arrested and charged Chinese nationals for visa fraud and Mike Pompeo delivered an overwrought speech in California, where America’s top diplomat described Xi Jinping as a tyrant bent on subjugating the free world.
Read more: Mike Pompeo Calls Xi Jinping A Tyrant
It was, frankly, one of the most dramatic weeks for US-China relations of the Trump era. And that’s really saying something.
The drama weighed on risk assets, pushing Chinese equities sharply lower Friday, and driving the yuan back through a 7.00 handle.
Over the last three years, Dalio has spent quite a bit of time (an understatement) weighing in on the multi-faceted dispute between the world’s two superpowers. He stuck largely to familiar talking points during his chat with Bartiromo, who adopted an adversarial tone towards the Chinese, in keeping with what I imagine is a contractural mandate to hew as closely as possible to the GOP line.
Dalio’s contention that it’s possible for the US to repudiate “debt to China” is questionable, to say the least. As Ray well knows, Treasurys are not IOUs made out to China. They are marketable securities. Beijing can just sell them.
The only way to orchestrate Lindsey Graham’s debt repudiation idea, would be to designate China and anyone acting on China’s behalf as personae non gratae in the market for US Treasurys under threat of sanctions. That is unthinkable, and it would arguably constitute a default by the US.
“Free market investors are not used to having those things dictated by the government”, Dalio said, of prospective efforts on the part of the US to intervene in capital markets.
Asked by Bartiromo if Beijing’s various transgressions in Xinjiang, Hong Kong, and the South China Sea constitute cause for the US to restrict investment in China, Dalio said Americans need to “decide what’s important to us”.
He went on to (very) gently note that China wouldn’t presume to dictate how the US handles its internal affairs.
Bartiromo moved on to ask about the deficit and whether trillions in stimulus threatens to undermine the dollar’s reserve currency status. Her questions come at a time when the greenback is on the back foot and gold is ascendant.
“The things I worry about the most are the soundness of our money”, Dalio said, taking the bait. “You can’t continue to run deficits, sell debt or print money rather than be productive and sustain that over a period of time”.
Ultimately, Ray put it all in the context of history, as is his wont. He’s in the process of writing an ambitious book about cycles and the factors that contribute to the rise and decline of empires. If nothing else, you have to applaud the effort — as anyone who’s read the chapters released thus far knows, Dalio is spending quite a bit of time on the endeavor.
“If we don’t work together to do the sound things, to be productive, to earn more than we spend, to build the stability of our currency and build the balance sheet, we are going to decline”, he told Bartiromo. “We are declining because of those things”.
Uncontrollable laughter, “what was your first clue”???????????
Debt repudiation? You mean like the Bolshies declared in 1918? Total bush-league move. But then we are talking about Donald Trump.
That’s what he has done on more than six occasions.