US sliding towards 1930s-style autocracy, warns Ray Dalio

Billionaire hedge fund boss says other investors are too scared of Trump to speak out

https://www.ft.com/content/b86bd33b-b3e7-4485-8b1c-6f01e639dd04

Hedge fund billionaire Ray Dalio has warned Donald Trump’s America is drifting into 1930s-style autocratic politics — and said other investors are too scared of the president to speak up.

The Bridgewater Associates founder told the Financial Times that “gaps in wealth”, “gaps in values” and a collapse in trust were driving “more extreme” policies in the US.

“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.

State intervention in the private sector, such as Trump’s decision to take a 10 per cent stake in chipmaker Intel, was the sort of “strong autocratic leadership that sprang out of the desire to take control of the financial and economic situation”, Dalio said.

His comments to the FT mark a rare criticism of Trump by a prominent financial figure, despite mounting private alarm at the president’s policies among some Wall Street’s investors.

“I am just describing the cause and effect relationships that are driving what is happening,” he said. “And by the way, during such times most people are silent because they are afraid of retaliation if they criticise.”

Dalio, who is among the US’s best-known macro hedge fund investors and turned Bridgewater into a $150bn powerhouse at its peak, also warned about the threats to the Federal Reserve’s independence days after Trump launched an unprecedented move to sack one of its governors.

Trump also recently nominated a close ally to fill a vacancy on the Fed’s board, a critical step as he pushes for fast and deep cuts to borrowing costs.

Dalio said a politically weakened central bank, pressed to keep rates low, “would undermine the confidence in the Fed defending the value of money and make holding dollar-denominated debt assets less attractive which would weaken the monetary order as we know it”.

International investors had started shifting out of Treasuries into gold, he added.

Dalio said he also believes many years of big deficits and unsustainable debt growth had brought the US economy to the brink of a debt crisis, although he noted “presidents from both parties” had overseen a worsening situation before Trump’s latest fiscal plan.

“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. “I’d say three years, give or take a year or two.”

Dalio, the author of Principles for Dealing With the Changing World Order and How Countries Go Broke: the Big Cycle, has long been vocal in warning of the debt threat posed to western economies. He likened the US to a body’s circulatory system clogged with plaque as the debt service payments squeeze out other spending.

He said Washington is spending about $7tn a year while raising only $5tn in revenue — an imbalance that would force massive new debt issuance just as investors question whether Treasuries are “good storeholds of wealth”. He added: “The demand for debt will unlikely keep up with the supply.”

The Fed would face a stark choice as the market began doubting the US’s fiscal credibility, Dalio added. “Allow interest rates to go up and have a debt default crisis, or print money and buy the debt that others won’t buy.” Both paths would hurt the dollar, he said.

submission statement

Multibillionaire (USD $14 billion net work) investor Ray Dalio, founder of hedge fund Bridgewater, went on the record and warned the Donald Trump is taking the United States to more or less an authoritarian system. He further noted other investors are "too scared" of Trump to publicly criticize him, while issuing further warnings of a "debt-induced" heart attack facing the US economy within the next "three years, give or take a year or two"