Billionaire hedge fund manager warns tariffs could trigger conditions 'worse than a recession'
Billionaire hedge fund manager Ray Dalio warned in an interview on Sunday that he's concerned about the economy experiencing something "worse than a recession" if the trade war sparks a breakdown of the broader financial system.
Dalio, the co-chief investment officer of the world's largest hedge fund, Bridgewater Associates, said in an appearance on NBC's "Meet the Press with Kristen Welker" that President Donald Trump's tariffs have been "very disruptive" and are "like throwing rocks into the production system."
Welker asked Dalio if Trump's tariffs are likely to cause a recession, and he replied, "I think that right now we are at a decision-making point and very close to a recession. And I'm worried about something worse than a recession if this isn't handled well."
Dalio said that while recessions occur regularly, what appears to be occurring is "much more profound" as there is a "breaking down of the monetary order" involving the dollar, along with a breakdown of the domestic and the world order.
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"Such times are very much like the 1930s," Dalio said.
"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, those changes in the orders, the systems, are very, very disruptive."
Welker followed up and asked him for his prediction of where the country is heading, after crediting Dalio for correctly predicting the 2008 financial crisis. Dalio noted that the U.S. federal government is at a critical juncture with its budget deficit, which has been projected to surge to 7% of gross domestic product (GDP) if tax and spending policies aren't reformed.
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"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," Dalio explained, adding that he's encouraging members of Congress to cut the deficit to 3% of GDP.
Dalio has outlined ways for policymakers to stabilize the debt at that level and has called for Congress to take on the issue in a bipartisan way like in the 1990s, when the federal government last ran a surplus.
He added that if the U.S. doesn't stabilize the deficit, it will likely cause interest rates on the national debt to rise and exacerbate the country's fiscal and economic challenges.
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"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.
Welker asked Dalio in another follow-up question what he views as a worst-case scenario for the economic system.
"To be very specific, the value of money, internal conflict that is not the normal democracy as we know it, and international conflict in a way that is highly disruptive to the world economy and could even be a military conflict just as these breakdowns have occurred before," Dalio said.