Hedge fund Bridgewater Associates founder Ray Dalio attributes much of his success to his knowledge of history, and he is using that knowledge to warn that the U.S. is declining from world power.
Key Details
- Judging by his study of history, Dalio warns that some concerning trends indicate the U.S. will lose prominence among other nations.
- During the Forbes Iconoclast Summit in New York earlier this week, Dalio discussed his essay published on LinkedIn earlier this year that claimed the U.S. and China are “on the brink of war and are beyond the ability to talk.”
- Dalio highlighted growing tensions between the countries concerning Taiwan and the dangers of an economic war, Forbes reports.
- “The relative position of the United States has declined, and the relative situation in China has risen. I am not saying the Chinese are going to win over the Americans, but they’re going to be comparable powers in a conflict, and those conflicts are multi-dimensional,” Dalio says.
Why it’s news
Economic tension between the U.S. and China has increased in recent years. American officials worry about China’s relationship with Taiwan, the country where a significant supply of semiconductor chips is produced.
China’s growth as a prominent world power is just one of three major issues Dalio says represent a threat to the U.S. The other two, he says, are the growing U.S. debt and the rise of populism in the country.
“If you have a financial crisis at the same time as you have large wealth gaps, and therefore big disagreements, you are likely to have populism,” Dalio says. “Those two things coming together are an explosive combination.”
Dalio, who has long been a study of history, opened his comments by sharing his memories of President Richard Nixon’s announcement in August 1971 that the U.S. would not be able to redeem Treasury debt held by foreign governments.
After the announcement, Dalio expected a stock market crash would follow. To his surprise, the stock market had one of its best days in recent history. By studying similar situations in the U.S. economy, Dalio later learned that a similar situation occurred when President Franklin D. Roosevelt suspended the gold standard, Forbes reports.
This instance convinced Dalio to rely on a study of history to inform what would happen in the future. This strategy, Dalio says, is what helped Bridgewater survive the 2008 and 2009 financial crisis.
“Things that surprised me often only surprised me because they didn’t happen in my lifetime, but they happened many times in history,” Dalio says. “By studying the 1920s to 1945 period, I understood the nature of the 2008 financial crisis.”
Now Dalio is relying on his study of history to warn of a significant change in the global power structure. Dalio says the U.S. has been the most prominent global power since World War II, but now he says that will change.
“In 1945, we began a new world order,” Dalio says. “There’s always some kind of conflict at the beginning, and the system changes. New folks are in charge, and they set the rules.”