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By Hugh Cameron
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Hedge fund manager and billionaire Ray Dalio has warned that the U.S. may be entering a new kind of “civil war” amid rising inequality and debt, as well as a breakdown in the global geopolitical order.
In an interview with Bloomberg TV which aired this week, the founder of Bridgewater Associates said that the forces which “shape the world” were all now being disrupted, and that America served as a prime example of this.
“We’re in wars. There is a financial, money war. There’s a technology war, there’s geopolitical wars, and there are more military wars,” he said. “And so we have a civil war of some sort which is developing in the U.S. and elsewhere, where there are irreconcilable differences.”
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Why It Matters
Dalio has this year issued several warnings about the risks posed by America’s rising national debt—which currently stands at nearly $38 trillion. He has also highlighted the country’s debt-to-income ratio of roughly 120 percent as potentially leading to a situation in which repayments sap government finances and trigger a “death spiral” for the economy. Dalio’s warnings have not been limited to gloomy economic forecasts, nor solely to the U.S., whose political and economic difficulties he views as caused by and representative of a broader, impending period of global strife.
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What To Know
In his interview with Bloomberg TV, Dalio highlighted the five forces he said have shaped history: Money, “internal order and disorder," geopolitics, acts of nature and “man’s learning” or technological developments. Dalio said that all five are currently in flux, with the apparent breakdown of the U.S.-led world order and widespread unrest creating a situation reminiscent of the late 1930s.
As well as debt levels, Dalio said the U.S. had entered a period of heightened disorder thanks to “the internal conflicts of wealth and how things should be run,” and that the internal political landscape has become worryingly polarized thanks in part to rising wealth inequality.
While Dalio’s broad analysis relates to cycles of history and the potential for global conflict, many other economists have echoed his concerns about rising debt levels, as well as other fiscal corrosives for the U.S. economy in particular.
Steve Hanke, who served on Ronald Reagan's Council of Economic Advisers, has warned that the contraction in the U.S. money supply could soon push the economy into a recession, while Moody’s chief economist, Mark Zandi, believes a number of economic indicators—from the labor market to consumer spending—are now "flashing red."
What People Are Saying
Ray Dalio, in his recent interview with Bloomberg TV, said: “If you take the most analogous period, I would say we're in a period that's quite like 1937-38. You have a debt issue. You have the internal conflicts of wealth and how things should be run. Disorder existed—formed. Democracies stop being democracies. So we're in a period that's very much analogous. That's plenty to worry about.”
What Happens Next
America’s fiscal difficulties are expected to persist over the next few years, with watchdogs and economic analysts projecting that the budget signed into law in July could swell the deficit by trillions over the next decade.
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