Key Takeaways
- • Bridgewater Associates founder Ray Dalio told the Financial Times that the US is drifting into 1930s-style autocratic politics, and said other investors are too afraid of the president to speak publicly.
- • Dalio cited Trump's decision to take a 10 per cent stake in Intel as an example of state intervention reflecting strong autocratic leadership, and said governments are increasingly controlling central banks and businesses.
- • Dalio warned that threats to Federal Reserve independence, following Trump's move to sack a Fed governor and nomination of a close ally to the board, could weaken confidence in the dollar and push investors toward gold.
- • Dalio said US spending of about $7tn a year against roughly $5tn in revenue could produce a debt-induced crisis, estimating it could occur within about three years.
Summary
Hedge fund billionaire Ray Dalio has warned that the United States is drifting toward 1930s-style autocratic politics under President Donald Trump, and said other investors are too scared of the president to speak up. Speaking to the Financial Times, the Bridgewater Associates founder attributed the trend to "gaps in wealth", "gaps in values" and a collapse in trust, which he said were driving "more extreme" policies. "I think that what is happening now politically and socially is analogous to what happened around the world in the 1930-40 period," Dalio said. He pointed to Trump's decision to take a 10 per cent stake in chipmaker Intel as an example of the strong autocratic leadership that emerges when governments seek control of the financial and economic situation. The comments are a rare public criticism of Trump by a prominent financial figure, according to the FT.
Dalio also warned about threats to the independence of the Federal Reserve, days after Trump moved to sack one of its governors and nominated a close ally to fill a vacancy on the board, as the president pushes for fast and deep cuts to borrowing costs. Dalio said a politically weakened central bank "would undermine the confidence in the Fed defending the value of money" and make dollar-denominated debt less attractive. He added that international investors had started shifting out of Treasuries into gold.
On fiscal policy, Dalio said years of large deficits and unsustainable debt growth had brought the US economy to the brink of a debt crisis, while noting that presidents from both parties had overseen the worsening situation. He said Washington was spending about $7tn a year while raising about $5tn in revenue, forcing large new debt issuance at a time when investors are questioning whether Treasuries remain good stores of wealth. "The great excesses that are now projected as a result of the new budget will likely cause a debt-induced heart attack in the relatively near future," he said, putting the timeframe at "three years, give or take a year or two." He described the Fed as facing a stark choice between letting rates rise and risking a debt default crisis, or printing money to buy debt others will not buy, and said either path would hurt the dollar.
Dalio, author of works including Principles for Dealing With the Changing World Order and How Countries Go Broke: the Big Cycle, framed his views within his "big cycle" concept, in which leaders during periods of great conflict and risk tend to exert more control over markets and the economy. He declined to describe Trump's model as authoritarian or socialist, but said that "increased wealth and value gaps lead to increased populism of the right and populism of the left" and that democracies weaken as populations seek strong leadership to fix the system.
Dalio also warned about threats to the independence of the Federal Reserve, days after Trump moved to sack one of its governors and nominated a close ally to fill a vacancy on the board, as the president pushes for fast and deep cuts to borrowing costs. Dalio said a politically weakened central bank "would undermine the confidence in the Fed defending the value of money" and make dollar-denominated debt less attractive. He added that international investors had started shifting out of Treasuries into gold.
On fiscal policy, Dalio said years of large deficits and unsustainable debt growth had brought the US economy to the brink of a debt crisis, while noting that presidents from both parties had overseen the worsening situation. He said Washington was spending about $7tn a year while raising about $5tn in revenue, forcing large new debt issuance at a time when investors are questioning whether Treasuries remain good stores of wealth. "The great excesses that are now projected as a result of the new budget will likely cause a debt-induced heart attack in the relatively near future," he said, putting the timeframe at "three years, give or take a year or two." He described the Fed as facing a stark choice between letting rates rise and risking a debt default crisis, or printing money to buy debt others will not buy, and said either path would hurt the dollar.
Dalio, author of works including Principles for Dealing With the Changing World Order and How Countries Go Broke: the Big Cycle, framed his views within his "big cycle" concept, in which leaders during periods of great conflict and risk tend to exert more control over markets and the economy. He declined to describe Trump's model as authoritarian or socialist, but said that "increased wealth and value gaps lead to increased populism of the right and populism of the left" and that democracies weaken as populations seek strong leadership to fix the system.
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