The co-chief financial officer (CFO) of Bridgewater Associates, Karen Karniol-Tambour, has predicted that the next recession will be “much more difficult” and “much more painful” than we are used to, due to the involvement of fiscal policy makers.
Bridgewater CFO Warns of Painful Recession
Karen Karniol-Tambour, the co-chief financial officer (CFO) of Bridgewater Associates, gave an interview to Bloomberg Last week. Founded by billionaire Ray Dalio, Bridgewater Associates is the world’s largest hedge-fund, with around $130 billion in assets under management.
When asked about the biggest threat he sees in five to ten years, Karniol-Tambour replied with a resounding “Yes!”:
The biggest threat is recessions that are longer and deeper than usual.
In the past, central banks have been able to step in and reverse any recessionary effects, making them “quick and shallow,” not “deep and long.” However, the Covid-19 pandemic has changed this, as for the first time, fiscal policy was made available to everyone involved. This means that “fiscal policymakers are now deeply involved in solving the problem,” Karniol-Tambour explained.
To me, the dam is broken to the point that fiscal policymakers are now part of the equation. They will likely provide massive fiscal expansions.
“Monetary policy will be less important, as fiscal policy will be doing the heavy lifting,” he added. “On the other hand, they will be in a much harder position, as they will have to deal with a lot more entrenched inflation due to secular inflationary pressures, as well as the stimulus of fiscal policies.” The CFO of Bridgewater went on to say:
This means that recessions will be more difficult and more painful than we are used to.
“We are in a place where to solve many of our most important problems, we need both market forces and political forces to make them work,” Karniol-Tambour stressed, pointing out that the risks are “exacerbated by the speed with which deglobalization is happening.” He went on to say:
The biggest wildcard here is actually how difficult the relationship with China becomes, as it is so deeply embedded in supply chains.
“It is important to know the difference between having them slightly reduced and completely removed. This could be an inflationary scenario that greatly complicates the overall situation,” the CFO suggested.
In December Last year, Blackrock, the world’s largest asset manager, also warned that we are heading into a recession, noting that it will be “the opposite of past recessions” and that “recession politics” will be conducted by them. Jim Cramer of Mad Money mentioned that the market has already determined {that a} recession is coming. However, US President Joe Biden said last week that he does not see the US economy falling into recession this year or next.
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