Billionaire hedge fund manager Ray Dalio isn’t just worried about a recession in the United States, he told “Meet the Press” host Kristen Welker Sunday, he’s worried about “something worse than a recession if this isn’t handled well.”
The “this” in question are Trump’s international tariffs.
“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,” the investor and Bridgewater founder explained. “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. So we have that problem. And when we talk about the dollar and we talk about tariffs, we have that.”
The United States has precedent for the situation the country faces, he added. “Such times are very much like 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. Or it could be handled well.”
After Welker asked Dalio for clarification (and noted that the correctly predicted the 2008 recession), he added that the United States is “at a juncture.”
“Let’s take the budget. If the budget deficit can be reduced to 3% of GDP, it will be about 7% if things are not changed,” Dalio answered. “If it could be reduced to about 3% of GDP, and these trade deficits and so on are managed in the right way, this could all be managed very well. I believe that members of Congress should take the pledge, what I call the 3% pledge. That in one way or another, that they will get that budget deficit down to that number. 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.”
Welker continued to push Dalio and asked him to name his “biggest fear” in terms of a financial crisis. “The value of money, what is a ‘storehold’ of wealth? That is a bond. In other words, one man’s debt is another man’s assets, bond holders. And so we’re going to be a situation where if that ‘storehold’ of wealth is in jeopardy because there’s too much supply and demand and so on, and we have a monetary inflation,” he explained. “We will have great disruptions. And that could be like the breakdown of the monetary systems of ’71. It could be like 2008. It’s going to be very severe.”
In August 1971 President Nixon announced a series of economic actions, including 90-day wage and price freezes, a 10% import surcharge, and the US dollar was delinked from gold, all of which had a negative impact on the economy. The importance of the US economy around the world was diminished, international transactions were threatened, and developing nations were especially hit hard by the import surcharges.
Known as the Nixon Shock, the measures were received well in the US but not internationally. The policies have also been cited as a cause of stagflation that plagued the decade that followed.
Watch the interview with Ray Dalio in the video above.
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