Ray Dalio Sounds Alarm on 'Capital Wars' Due to Trump's Policies

Ray Dalio thinks the world could be on the verge of "capital wars." The billionaire investor and Bridgewater Associates founder isn't shy about sounding the alarm on economic problems he sees brewing. At this week's World Economic Forum in Davos, Switzerland, he says Donald Trump's aggressive policies could spark global financial conflict. The president looms large over Davos this year, with his threatening rhetoric related to Greenland, which he says the US must control for security reasons. While Trump's latest comments are in focus, Dalio says they're just another part of a troubling trend that could shift the global financial order. Speaking with CNBC at the event, Dalio said the possibility of capital wars represents a threat with widespread ramifications for markets and the economy. "On the other side of trade deficits and trade wars, there are capital and capital wars," Dalio stated. "If you take the conflicts, you can't ignore the possibility of the capital wars. In other words, maybe there's not the same inclination to buy at US debt and so on." In his view, trade conflicts such as the one playing out between the US and much of the rest of the world, don't actually resolve global imbalances. They do, however, put strong tensions on capital flows, as countries grapple with who is financing deficits and which nations are willing to hold certain assets. In particular, eroding trust in the US could make global investors less willing to lend to the country by buying Treasurys. "We know that both the holders of US dollar-denominated debt…and those who need it, the United States, are worried about each other," he said. "If you have other countries who are holding it and they're worried about each other, and we're producing a lot of it, that's a big issue." If foreign demand slumps, he says the US may be forced to rely on internal measures to provide the funding it needs. This could lead to higher inflation or currency debasement, two factors that would likely reinforce concerns among foreign investors. Dalio also reiterated his positive view of gold as a reserve asset in the event of capital wars. He said that in normal times, gold should account for between 5% and 15% of a well-diversified portfolio. "I have been clear for quite a while that I would tilt away from bronze, and I would be tilting toward gold, and have a greater than normal amount of that," he said.