The world’s largest economy, the United States, is exhibiting signs of decline under the mountainous debt that stunts growth, warns veteran hedge fund manager Ray Dalio.
He told MarketWatch that life in the US could become more difficult due to fewer opportunities for ordinary citizens to get ahead financially. Another factor, according to the investor, is worldwide lack of trust in the US dollar that diminishes Americans’ purchasing power and could lower their standard of living.
The founder of Bridgewater Associates, the world’s largest hedge fund firm, Dalio said that today the capitalist system, the foundation of the US economy, is not working efficiently and effectively enough for all.
“Capitalism and capitalists are good at increasing and producing productivity to increase the size of the economic pie,” he said, adding that “Capitalism also produces large wealth gaps that produce opportunity gaps, which threaten the system.”
According to the billionaire, unless Washington takes steps to provide greater opportunity for more Americans to achieve personal growth and financial security, the consequences likely will be painful for the country. “What’s going on is an economic downturn together with a large wealth gap and the rising power of China challenging the existing power of the United States.”Dalio explained that “The United States’ relative position in the world, which was dominant in almost all these categories at the beginning of this world order in 1945, has declined and is exhibiting real signs that should raise worries.”
The US has a lot of debt, “which is adding to the hurdles that typically drag an economy down, so in order to succeed, you have to do a pretty big debt restructuring. History shows what kind of a challenge that is.”
He also pointed out that the US doesn’t have a good income statement and balance sheet in dealing with the rest of the world. “If the US loses that ability and it doesn’t force itself to be more productive, one day it will lose that ability to borrow and then will have to cut spending, which is painful,” said Dalio.