Key Takeaways
- • Ray Dalio, founder of Bridgewater Associates, said on Tuesday at the World Governments Summit in Dubai that the world is "on the brink" of a capital war, in which money is weaponized through trade embargoes, blocked access to capital markets, or leveraging debt ownership.
- • Dalio cited escalating tensions over the Trump administration's push to bring Greenland under U.S. control and a fear among European holders of U.S.-denominated assets that they could be sanctioned.
- • European investors accounted for 80% of foreign purchases of U.S. Treasurys between April and November, according to Citi research cited by Reuters.
- • Dalio said sovereign wealth funds and central banks are already making "provisions" for possible foreign exchange and capital controls.
- • Dalio reiterated that gold remains the best place to store money, noting gold was up about 65% from a year ago and down about 16% from its high after a sharp sell-off.
Summary
Ray Dalio warned on Tuesday that the world is "on the brink" of a capital war, a state in which governments weaponize money through measures such as trade embargoes, blocking access to capital markets, or using ownership of debt as leverage. Speaking to CNBC's Dan Murphy on stage at the World Governments Summit in Dubai, United Arab Emirates, Dalio said the risk is near but not yet realized, adding that "it would be very easy to go over the brink into a capital war, because there are mutual fears."
Dalio pointed to escalating tensions over the Trump administration's push to bring Greenland, a Danish territory, under Washington's control. He described a fear among European holders of U.S.-denominated assets that they could be sanctioned, and a reciprocal concern in the United States that it could not attract capital or sufficient purchases from Europe. According to Citi research cited by Reuters, European investors accounted for 80% of foreign purchases of U.S. Treasurys between April and November. Since returning to the White House last year, President Donald Trump has imposed and then walked back a range of punitive tariffs on trading partners and political adversaries, decisions that have contributed to volatility in financial markets.
Dalio said that historically, capital wars have involved foreign exchange and capital controls, and that sovereign wealth funds and central banks were already making provisions to prepare for such controls. He noted that capital wars have typically developed around major conflicts, citing the period before the U.S. entered the Second World War, when Washington sanctioned Japan amid a contentious relationship. He suggested a similar dynamic could emerge between China and the United States, or between the U.S. and Europe, given that a capital imbalance mirrors the trade deficit and capital could be used as a weapon.
On gold, Dalio said it remains the best place to store money despite a historic sell-off that pushed precious metals lower across the board, with gold and silver showing tentative signs of recovery by Tuesday. He said gold was up about 65% from a year ago and down about 16% from its high, and advised that central banks, governments, and sovereign wealth funds should set a fixed percentage allocation to gold rather than trade it on price moves, calling it an effective diversifier. "I'd say the most important thing is have a well-diversified portfolio," he said.
Dalio pointed to escalating tensions over the Trump administration's push to bring Greenland, a Danish territory, under Washington's control. He described a fear among European holders of U.S.-denominated assets that they could be sanctioned, and a reciprocal concern in the United States that it could not attract capital or sufficient purchases from Europe. According to Citi research cited by Reuters, European investors accounted for 80% of foreign purchases of U.S. Treasurys between April and November. Since returning to the White House last year, President Donald Trump has imposed and then walked back a range of punitive tariffs on trading partners and political adversaries, decisions that have contributed to volatility in financial markets.
Dalio said that historically, capital wars have involved foreign exchange and capital controls, and that sovereign wealth funds and central banks were already making provisions to prepare for such controls. He noted that capital wars have typically developed around major conflicts, citing the period before the U.S. entered the Second World War, when Washington sanctioned Japan amid a contentious relationship. He suggested a similar dynamic could emerge between China and the United States, or between the U.S. and Europe, given that a capital imbalance mirrors the trade deficit and capital could be used as a weapon.
On gold, Dalio said it remains the best place to store money despite a historic sell-off that pushed precious metals lower across the board, with gold and silver showing tentative signs of recovery by Tuesday. He said gold was up about 65% from a year ago and down about 16% from its high, and advised that central banks, governments, and sovereign wealth funds should set a fixed percentage allocation to gold rather than trade it on price moves, calling it an effective diversifier. "I'd say the most important thing is have a well-diversified portfolio," he said.
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