Bridgewater Founder: U.S. President vs. Fed Chairman Over Currency Value

The founder of Bridgewater Associates recently published an article titled "Defending the Value of Currency," highlighting the ongoing debate between the U.S. President and the Federal Reserve Chairman over monetary policy. The founder pointed out that when debt and borrowing are excessive, the classic response is to lower real interest rates and devalue the currency, which benefits debtors at the expense of creditors. This is the direction the President is pushing, while the Chairman is trying to defend against it.

The founder noted that such disputes are common in the realm of monetary policy, but this one is particularly intense. There is an inherent tension between central bank leaders and incumbent politicians seeking re-election. Normally, monetary policy and political power are kept separate, but in extreme situations, this separation can break down. The founder explained that heads of state typically favor more stimulus policies to boost financial markets, goods, and services consumption, keeping citizens satisfied until inflation becomes severe enough to warrant tightening monetary policy. In contrast, excellent central bankers strive to balance easing and tightening, using various economic indicators to "operate against the trend."

The founder's article comes at a time when the U.S. government and the Federal Reserve, along with its Chairman, are in a heated battle. The President has mentioned multiple times this year the possibility of attempting to remove the Chairman to pressure the Federal Reserve to cut interest rates. Recently, the government has frequently mentioned the Federal Reserve's spending of 250 million dollars on renovating its office building and the cost overrun, adding pressure on the Chairman. The President even convened Republican lawmakers in his office last week to discuss firing the Chairman, although this was later abandoned.

The founder listed several market and economic indicators currently in use. Market indicators show that the U.S. monetary environment is loose, and the economy is not in crisis. This is evidenced by a rising stock market, a depreciating dollar, narrowing credit spreads, and low real yields. The founder also noted that the overall U.S. economy is relatively balanced, although it has slowed slightly. Unemployment remains low at 4.1%, but it is rising slowly. Investment and revenue in the technology sector, particularly in AI, are growing strongly, while sentiment and the real estate market are weaker. The global economy is generally performing poorly.

Defending the value of currency is difficult but essential. The founder's article stated that maintaining monetary or fiscal discipline is unpopular because it essentially requires people to tighten their spending. However, achieving balance is crucial because one person's debt is another person's asset. If currency is to function successfully, it must be both a medium of exchange and a store of value. The founder believes that, based on historical experience and current circumstances, it is unlikely that the value of currency will be defended unless the "weak currency/high inflation" problem becomes severe enough to be ignored—even then, action may not be taken due to the intense pain involved. The economic cycle from 1970 to 1982 is a classic example. Therefore, even if monetary policy is tightened in the future, it is almost certain that this will not happen in the short term.

The founder concluded that the future outlook is complex and uncertain, with factors such as debt, trade, politics, and geopolitics tending to drive inflation, while technological progress has a deflationary tendency and may exacerbate wealth disparities. In the current environment, the founder advised investors to continue betting on the "weak currency" trend, meaning a falling dollar and low or even lower real interest rates.