Through the April tariff turmoil, legendary investor and founder of the Bridgewater Associates hedge fund Ray Dalio has been trying to keep his focus on the bigger picture. His latest assessment suggests that a recession might be the least of the world’s woes under the current circumstances.
Overall, Dalio believes that, beyond just the tariff-induced trade disruption, the world is at a crossroads akin to many others throughout history, with a reshaping of sorts as the prevailing order has become unsustainable, as revealed in a lengthy April 7 X post.
The breakdowns in the monetary, political, and geopolitical orders that take the forms of depressions, civil wars, and world wars, that then lead to the new monetary, political orders that govern interactions within countries, and the geopolitical orders that govern interactions between countries until they break down, have all happened repeatedly and are the most important things to understand well.
One of the main reasons the 2025 situation is dangerously close to a recession, ripe for change, and generally unstable is the major disbalances that emerged from a system that depends on certain actors – the U.S. – borrowing vast amounts of money to purchase massive quantities of goods and others – China – lending money to the other party to facilitate the sale of products they produce.
Though Dalio remains adamant that the prevailing situation can have good outcomes, he is also concerned that the steps must be measured well and thoroughly considered to ensure a catastrophe is avoided, as he stated in a recent interview on NBC News’ Meet the Press.
Why Dalio fears the recession isn’t the worst likely outcome
In terms of the negative potential outcomes other than a recession, the investor’s comparison between 2025 and the 1930s paints an alarming picture that is only made worse by his direct mention that an armed conflict is possible, indicating a very real fear that the Third World War (WW3) could break out.
Dalio’s notion that the world’s debt balance is a pivotal issue has some backing in recent developments. Many agree that President Donald Trump’s decision to pause the reciprocal tariffs for 90 days emerged as a direct result of the turmoil in the bond market – a segment critical for America’s ability to handle its burden smoothly.
Furthermore, there are numerous signals that the global order that emerged in the 20th century is unraveling, despite the investor’s reading of the situation differing from the prevailing wisdom.
Ray Dalio sees a global move to a ‘power-rules approach’
Specifically, Dalio opined in the X post that recent years have featured a move from a cooperative America-led rules-based setup toward a ‘unilateral, power-rules approach.’
The international geopolitical world order is breaking down because the era of one dominant power (the U.S.) that dictates the order that other countries follow is over. The multilateral, cooperative world order the U.S. led is being replaced by a unilateral, power-rules approach. In this new order, the U.S. is still largest power in the world and is shifting to a unilateral, “America first” approach. We are now seeing that manifest in the U.S. led trade-war, geopolitical war, technology war, and, in some cases, military wars.
Many outside the U.S. argue that the world has been in a unipolar order in which the singular superpower has been dictating the business of the day. Such a situation has, therefore, grown unstable with the emergence of competitors and widespread dissatisfaction over the rampant abuse of power.
Could a major armed conflict accompany the next recession?
Dalio’s anxiety about a possible armed conflict can also be easily understood by the frequent hawking of various politicians concerning a potential war with China, military intervention in Mexico, and Trump’s repeated courting of an invasion of Iran.
The danger is also seen in that Iran would, arguably, be the strongest power the U.S. has faced since it stumbled into a limited war with China after crossing into the DPRK during the Korean War or since it fought North Vietnam. Simultaneously, the outcome of the two conflicts does much to explain why the investor sees the situation as fraught.
The recent moves showing a move back towards military blocks, as exemplified by the ever-closer cooperation between Russia, China, and Iran, or the EU’s pledge to increase military spending and general remilitarization, exacerbate the situation as they increase the odds of regional wars turning into WW3.
Ray Dalio identifies a critical step for avoiding catastrophe
Lastly, Ray Dalio identified debt control as one of the key areas of focus that should not be overshadowed by the tariff turmoil. He urged Members of Congress to pledge to limit additional burden-taking to no more than 3% of the gross domestic product (GDP).
Still, in line with the investor’s other warnings about the likely degradation of the rule of law in turbulent times, any pledges made by elected officials could prove superfluous as the Trump administration, along with its gutting of the government and a focus on securing external revenue, is poised to make history by directly defying the judiciary.
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