Watch Ray Dalio explain his predictions in an interview with Bloomberg Television earlier today.
Causes of Inflation
A depreciating dollar would result from the failure of domestic and foreign demand for U.S. debt to keep up with the nation’s borrowing needs. The Federal Reserve would need to step in as they did with previous quantitative easing programs (QE 1, 2, and 3) to fund the deficit. Unfortunately, by pumping money into the U.S. economy they would weaken the dollar.
Why Inflation Matters to Investors
Foreign investors currently hold $6.211 trillion in U.S. government debt, more than twice as much as in 2008 (Source:Federal Reserve Bank of St. Louis). When the dollar weakens, foreign investors demand higher rates on U.S. Treasury bonds to offset the loss in value they would see when they convert dollar-based investments back into their own currencies. A weaker dollar also pushes prices of some imported goods higher. To learn more about how a weaker dollar may impact your investment portfolio, contact Mink Wealth Management today.