Very Much Like The 1930s: Bridgewater Associates' Ray Dalio Worried About Something Worse Than Recession 

Ray Dalio, the founder of multinational hedge fund, Bridgewater Associates made a grave prediction about a possible outcome of the imposition of tariffs by US President Donald Trump. Dalio told NBC News in an interview that even as most analysts worry about the onset of recession in the US economy, the possibilities can be much more grave.

“I think that right now we are at a decision-making point and very close to a recession, and I'm worried about something worse than a recession if this isn't handled well,” Dalio said.

Ray Dalio’s Big Warning

Dalio projected that the risks of tariff imposition could extend beyond economic downturns and a recession. He added that the risks are likely to extend to drastic changes in the world order itself due to the breakdown of the monetary order.

“A recession is two negative quarters of GDP and whether it goes there. We always have those things. We have something that's much more profound. We have a breakdown of the monetary order. We are going to change the monetary order because we cannot spend the amounts of money so we have that problem, and when we talk about the dollar and we talk about tariffs we have that,” Dalio said.

A Repeat Of The 1930s

Dalio added that the imposition of the tariffs is very much like the 1930s wherein former US President Herbert Hoover signed the Tariff Act of 1930 which is also known as the Smoot–Hawley Tariff Act. Notably the Smoot-Hawley tariffs drastically impacted the global economy as increased tariffs snowballed into a worldwide trade war and worsened the Great Depression. While Dalio mentioned the possible negative outcomes he added that the situation could also be salvaged.

“Such times are very much like the 1930s. I've studied history and history repeats over and over again. If you take tariffs, if you take debt, and the rising power challenging and existing power and those changes in the order are very disruptive. How that's handled could produce something that's much worse than a recession or it can be handled well,” Dalio told NBC.

Ray Dalio’s 3 Per Cent Pledge Solution

Dalio added that despite the gravity of the situation, it can still be managed if the US Congress actively undertakes efforts to reduce the budget deficit to 3 per cent from the current deficit of 7 per cent. Dalio emphasised that the US Congress members should pledge to bring down the deficit.

“Now, right now we're at a juncture. If the budget deficit can be reduced to 3 per cent of GDP, it will be about 7 per cent if things are not changed. If it could be reduced to about 3 per cent of GDP and these trade deficits and so on are managed in the right way, this could all be managed very well. I believe that members of Congress should take the pledge, that in one way or another they will get that budget deficit down to that number,” Dalio said.

Dalio added that not taking active steps to reduce the deficit could create a demand-supply problem, resulting in a more severe problem than a recession.

“If they don't, we're going to have a supply-demand problem for debt at the same time as we have these other problems, and the results of that will be worse than a normal recession,” Dalio said.

Notably, Dalio had rightly predicted the US financial crisis of 2008 which later spiralled into the Global Financial Crisis. The crisis was triggered by a collapse in the US housing market.