Ray Dalio, the founder of the world largest hedge fund — Bridgewater Associates — has expressed similarly deep concerns about the state of the global economy. He argues that we are just on the cusp of a huge revolting storm. In his analysis, he identifies five forces that he believes have historically driven the course of events: the economy, internal political conflict, the international order, technology, and acts of nature. Dalio agrees that the current terrain is particularly fragile and unstable. It’s being molded by supply chain breakdowns, rising U.S. liabilities, and the ascendance of a more emboldened emerging world.
Dalio’s main contention is that the global economic and geopolitical order has been stable since the end of World War II. He cautions that stability is now completely at risk. In particular, he identifies the recent volatility created by President Donald Trump’s tariff policies as a driver of this instability. Although his tariffs do target some valid concerns, the course of their implementation has upended things in a widely disruptive manner. This disruption serves to stoke an escalating international crisis with ramifications around the world.
The billionaire investor has always believed in a positive, inclusive approach to trade. So we’re glad to see the call for the U.S. to negotiate a “win-win” agreement with China. He suggests that such an accord would serve to bolster the yuan relative to the dollar. This new reality would redefine international relations and international trade dynamics in a much more stable manner.
Meanwhile, Dalio lays out the turn toward a zero-sum, unilateral world order as perhaps the most concerning trend. He states, “We are going from multilateralism, which is largely an American world order type of thing, to a unilateral world order in which there’s great conflict.” Such a shift, he cautions, risks fueling economic hostilities and undermining the stability of the global monetary order.
A major caveat in the U.S. federal deficit casts a huge shadow on Dalio’s forecast. He suggests that Congress should aim to reduce the deficit to 3% of gross domestic product to avert potential crises. Dalio emphasizes that without such measures, “we’re going to have a supply-demand problem for debt at the same time as we have these other problems, and the results of that will be worse than a normal recession.”
The risk of a meltdown in the bond market nails the lid down on the casket of his warnings with additional urgency. Dalio likens this impending crisis to major historical two-sigma events. He claims it could provide an even greater shock to the monetary order than Nixon’s closing of the gold standard in 1971 or the GFC in 2008.
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