Dalio Says Capital Markets Are ‘Not Free‘ as Central Banks Drive Economy

Ray Dalio, the billionaire hedge fund manager and founder and chief investment officer of Bridgewater Associates, believes capital markets are no longer free.

Speaking to Bloomberg, Dalio said markets have changed a lot so central banks like the Federal Reserve no longer act within the confines of the traditional economic system.

“There are markets that are driven by central banks not only their actions but their desire to be an owner of those assets. Their priorities about that ownership when they buy and when they sell are not the same as the classic free-market allocations. And as a result, the capital markets are not free.”

He said central banks, in normal times, will put money on deposit for banks to borrow and lend it to people who can pay. This creates the credit system and other financial assets compete with each other. Now, Dalio said, the economy and the markets are more driven by the ownership of assets by central banks.

He said central banks found themselves in a situation “where they’re the market makers” after the 2008 Financial Crisis and created the environment where markets are no longer free. But, he pointed out, if the central banks did not allow lending to blue-chip companies and fallen angels, then large parts of the economy could fall.

Dalio said the U.S. dollar may also lose attractiveness because as a reserve currency, the flood of cash in the market means the traditional valuation of money no longer exists. He has previously expressed concerns over the U.S. dollar’s role as a reserve currency.

Dalio is famously bearish on cash but still has not thrown his weight towards other alternatives, like say cryptocurrencies. Dalio said in April “cash is almost always the worst investment.” The billionaire has talked about bitcoin before but felt cryptocurrencies are much too volatile to function as a store of value.