Ray Dalio Sounds Alarm: The Old Economic Order Is Over-and We’re Not Ready.
The billionaire hedge fund founder warns global leaders to ditch outdated assumptions about financial stability and prepare for a world where power, not law, prevails.
Key Takeaways
- Ray Dalio says the post-World War II global order is effectively finished, a reality leaders are avoiding.
- The billionaire investor points to a “breakdown of the monetary order,” with central banks shifting away from fiat currencies and increasing gold reserves.
- Dalio warns of a transition from trade disputes to “capital wars” as the U.S. faces dwindling demand for its debt.
- He argues that in a world of increasing geopolitical conflict, “power matters more” than legal frameworks.
- Despite the bleak outlook, Dalio sees potential in a concurrent “wonderful technological revolution.”
The global economic rulebook has been ripped up, and pretending otherwise is a risky delusion. That’s the stark warning delivered by Ray Dalio, founder of Bridgewater Associates, to global leaders and business executives at the World Economic Forum in Davos, Switzerland. The fate of the post-World War II global order-a topic of debate even before President Donald Trump’s unconventional moves like pursuing the purchase of Greenland and challenging the NATO alliance-is no longer up for discussion.
“Let’s not be naive and say, ‘Oh, we’re breaking the rule-based system,'” Dalio said. “It’s gone.”
Dalio, whose hedge fund is the largest in history, draws on five centuries of economic history to support his assessment. He sees patterns repeating themselves, describing the current situation as a familiar, unfolding “movie.” The central plot driver? The “money-debt cycle.”
The roots of the current instability, according to Dalio, lie in decades of monetary policy decisions. Since 1971, when President Richard Nixon ended the dollar’s link to gold, governments have consistently opted to “print money” rather than allow debt crises to run their course. This occurs when debt payments outpace income growth, squeezing spending. After more than half a century of this approach,Dalio argues the world is witnessing a “breakdown of the monetary order,” evidenced by central banks adjusting their reserves and increasing their gold holdings.
In a CNBC “Squawk Box” appearance from Davos the previous day, Dalio noted that fiat currencies and debt were “not being held by central banks in the same way” anymore. He pointed to underperformance of U.S. markets compared to foreign markets, a trend reflected in shifting central bank balance sheets.
As confidence in institutions, the law, and fiat debt erodes, Dalio highlighted the resurgence of gold to CNBC, emphasizing it should be viewed as the “second-largest reserve currency,” not merely a speculative asset. he noted that gold was the “biggest market to move” in the previous year,outperforming tech stocks as central banks diversified their holdings.JPMorgan CEO Jamie Dimon expressed a similar sentiment in an October interview, stating it had become “semi-rational” to include gold in a portfolio.
Dalio’s core concern centers on a shift from trade disputes to what he calls “capital wars.” For decades, U.S. Treasury bonds served as the foundation of global reserves, but now, the increasing supply of U.S. debt is colliding with waning demand.
However, dalio’s outlook isn’t entirely pessimistic. He sees the current era as a bifurcation-a decaying monetary order alongside a “wonderful technological revolution,” echoing President trump’s earlier remarks about an “economic miracle.” in that respect, at least, might could ultimately make right.
