Investment guru Ray Dalio warns that America's massive wealth gap could lead to conflict amid a toxic brew of worsening inequality, political polarization and mounting debt.
"There will have to be a resolution of the system working for the majority of the people in which there's productivity," Dalio told CNN.
"And that could be obtained either in a smart, bipartisan way -- or it will come by greater conflict," the billionaire hedge fund investor said.
"I've studied the last 500 years of history and cycles and these things repeat over and over again," Dalio said. "Large wealth gaps with large values gaps at the same time as there's a lot of debt and there's an economic downturn produces conflict and vulnerability," said Dalio, the founder and co-chief investment officer of Bridgewater Associates. His net worth is $15.5 billion, according to the Bloomberg Billionaires Index.
Dalio, who started Bridgewater Associates in 1975 and now serves as the hedge fund's co-chairman, urged political leaders to find middle ground to address the nation's unsustainable inequality problems, CNN said.
"In order to bring the country together and not have a form of civil war...there has to be the bringing of the country together -- but in a smart way," Dalio said.
Dalio stressed that he doesn't want Americans to panic. "The worst alternative is that one side or another says 'this isn't my country anymore. This isn't my population,'" he said. "That's when the cause that people are behind is more important than the means of resolving their disagreements. That's a threatening situation. History has shown that to be the case."
To be sure, the wealth of U.S. households hit a record $123.5 trillion in September as rising stock market and home values and an accumulating buffer of cash defied expectations of a pandemic-related crash in household finances, according to new data from the U.S. Federal Reserve.
The Fed's latest report on U.S. household, business and government financial accounts covers the period from July through September, and thus looks backwards during a period of potential volatility for family balance sheets.
Millions may be losing unemployment insurance in coming weeks, and a steady flow of people into unemployment programs suggests available cash balances may have been tapped through the fall to cover expenses. The release also does not give information on how available cash is distributed between higher-wealth families and poorer ones, Bloomberg said.
But as of the end of September at least, well into a period when initial rounds of pandemic-related benefits were beginning to expire for unemployed workers and small businesses, U.S. households on the whole were holding their own.
Rising equity markets added $2.8 trillion to household assets, and rising real estate values added around $400 billion.
Meanwhile, tax cuts for rich people breed inequality without providing much of a boon to anyone else, according to a study of the advanced world that could add to the case for the wealthy to bear more of the cost of the coronavirus pandemic.
The paper, by David Hope of the London School of Economics and Julian Limberg of King’s College London, found that such measures over the last 50 years only really benefited the individuals who were directly affected, and did little to promote jobs or growth, Bloomberg said.
“Policy makers shouldn’t worry that raising taxes on the rich to fund the financial costs of the pandemic will harm their economies,” Hope said in an interview.
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