 "Why investor Ray Dalio is warning US of ‘worse than a recession’")
Many people around the world are worried about a possible recession.
But there are those who fear something even worse.
Like billionaire Ray Dalio, who is the founder of US investment firm Bridgewater Associates.
Dalio, 73, has said that Trump’s tariffs will result in something likely ‘worse than a recession.’
Dalio last week called for the US to conclude a “win-win” trade agreement with China.
He also urged both Washington and Beijing to fix their growing debts.
But what did Dalio say exactly? What is he worried about?
Let’s take a closer look:
What did he say?
As per CNBC, Dalio said five forces drive history – the economy, internal political conflict, the international order, technology and acts of nature such as floods and pandemics.
However, he said Trump’s tariffs have been “very disruptive” and his trade war has brought the US to the edge of recession.
Dalio compared the situation in the world to that of the 1930s.
“I’ve studied history and this repeats over and over again. So if you take tariffs , if you take debt, if you take the rising power challenging existing power, if you take those factors and look at the factors, those changes in the orders, the systems, are very, very disruptive. How that’s handled could produce something that is much worse than a recession,” Dalio was quoted as saying by The Guardian.
“Right now we are at a decision-making point and very close to a recession,” Dalio told NBC. “And I’m worried about something worse than a recession if this isn’t handled well.”
He was responding to a question as to whether the US could face a recession.
“I think that right now we are at a decision-making point and very close to a recession," Dalio said.
CNN quoted Dalio as saying that whether tariffs are implemented in a “stable” way or a “chaotic and disruptive way” makes “all the difference in the world.”
A recession is usually understood as a meaningful decline in output.
Dalio, who correctly predicted the 2008 recession, is the founder of one of the world’s largest hedge funds.
“A recession is two negative quarters of GDP and whether it goes slightly there. We always have those things. We have something that’s much more profound. We have a breaking down of the monetary order. We are going to change the monetary order because we cannot spend the amounts of money,” Dalio added.
The tariff plan includes duties on dozens of countries but the planned start dates for many of those changed abruptly last week, with a 90-day pause for goods from many places except China.
Dalio said this had been “very disruptive” and the tariffs ’ impact was “like throwing rocks into the production system.”
Dalio is worth $16 billion, as per Bloomberg’s Billionaires Index.
“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,” Dalio told NBC.
Dalio claimed that the very value of money is at stake and a collapse in the bond market and conflict – both in America and around the world – could result in a worse shock to the US monetary system than when Richard Nixon took America off the gold standard in 1971 or the 2008 global financial crisis.
He said the current situation “could be more severe than those if these other matters simultaneously occur.”
Dalio seemed to be worried about geopolitical instability on a global scale.
“I’m worried about the value of money, internal conflict that is not the normal democracy as we know it, an international conflict in a way that is highly disruptive to the world economy, and could even be a military conflict,” Dalio was quoted as saying by Livemint.
Dalio founded Connecticut-based Bridgewater roughly 50 years ago and has 175 investors, including pension funds, foundations and central banks.
“If they don’t, 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,” Dalio said.
“This sort of breakdown occurs only about once in a lifetime,” Dali was quoted as saying by The Times of India. “They have happened many times in history when similar unsustainable conditions were in place.”
What are his solutions?
Dalio suggested that US Congress be fiscally responsible.
He suggested that the deficit be reduced to three per cent of GDP.
“If they don’t, 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,” Dalio said.
As per Economic Times, US debt is currently 121 per cent of GDP.
“I hoped… to help policy makers understand these forces… to help individuals… and to encourage smart people who have different views than mine to have open, thoughtful exchanges,” Dalio concluded.
A new CBS poll quoted almost half of the respondents as saying that tariffs will increase prices in the long term.
Meanwhile, a growing number predict a recession will occur in the next year.
As per CNN, Goldman Sachs puts the chance of a recession in the next year at 45 per cent.
With inputs from agencies
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