Ray Dalio, founder of Bridgewater Associates, published an article on November 9 “What I Think of The Results of the U.S. Midterm Elections", analyzing the impact of the U.S. midterm election results on politics, finance and the international situation.
He believes that this election will not change the fundamental problems facing the United States, including government debt, the gap between rich and poor, differences in social values, geopolitical conflicts and technological changes. What really deserves attention is whether American politicians will choose cross-party cooperation or further worsen political opposition. He expects that the election results will plunge American politics into more conflicts and dysfunctions, and may even further weaken the United States' international influence.
Political confrontation in the United States may further escalate. Dalio: The real question is whether it can be effectively governed
Dalio pointed out that the midterm elections will change who will be responsible for dealing with problems in the future and how the government will deal with problems, but they will not make these problems go away. The United States still must face huge government debt, wealth and values gaps, international geopolitical conflicts, and challenges posed by climate and technological development.
He believes that the most important question after the election is whether American politics will see more infighting and governance failure, or whether solutions can be found through cross-party cooperation, and he currently prefers the former.
From the perspective of political structure, Dalio divides the political spectrum into four groups: the extreme left, the moderate left, the moderate right and the extreme right. He believes that when socioeconomic conditions deteriorate, the gap between rich and poor, and differences in values widen, political positions will gradually become polarized. The left and right factions will first compete for power with each other. After one party gains an advantage, the moderates and extremists within the camp will continue to fight for dominance.
Dalio believes that this political dynamic is not unique to the United States, but is a recurring historical phenomenon in human society as the gap in wealth and values widens. At present, similar power struggles have occurred within the Republican and Democratic parties in the United States, and intra-party and cross-party conflicts are likely to increase further in the future.
He emphasized that what the United States really needs is moderates on the left and right who have sufficient ability and political strength to cooperate to fight against extremist forces and promote reforms that are necessary but unpopular with voters. However, he also admitted that the possibility of this path being realized is quite low.
Fiscal impasse may hit U.S. public debt, making 2027 a key time to watch
In terms of economics and financial markets, Dalio specifically warned that the United States will face a series of government budget and debt problems, and political conflicts may be directly transmitted to the U.S. government bond market.
He listed three time points worthy of attention:
- December 11, 2026: The Trump administration’s current interim funding period expires, and Congress must address the subsequent government budget.
- March 2027: U.S. federal debt is expected to hit the legal debt ceiling, once again facing political negotiations to raise or suspend the debt ceiling.
- Fall 2027: The U.S. Treasury Department is expected to face further depletion of available funds and financing options.
Dalio predicts that these fiscal issues will trigger fierce political battles and increase uncertainty about government spending and tax policies. When investors begin to worry about the risk of government payment delays or debt defaults, they may demand higher risk premiums, pushing up yields on Treasury Bills and other short-term government debt.
What's more noteworthy is that he believes that if the political deadlock continues to worsen, market concerns about liquidity and credit risks will also increase, further eroding the trust of U.S. government bonds as the world's main safe collateral (Safe Collateral).
This is not just a question of the cost of financing the U.S. government. U.S. Treasury bonds have long been an important collateral and liquidity base for the global financial system. If market trust in their safety is eroded, the impact may spread to global financial markets.
In addition, Dalio also specifically mentioned that if Elizabeth Warren serves as chairman of the Senate Banking Committee, it may further trigger conflicts between financial regulatory policies and economic policies.
The international influence of the United States may be weakened, and China may expand its influence in Asia.
Dalio believes that the election results will also make Trump a lame-duck President whose political influence has been damaged and will face more domestic political attacks and defenses during the remainder of his term.
He described the current situation in the United States as a civil war that may tend to be peaceful. In addition to domestic political confrontation, the isolationist tendencies of the people and opposition forces will also limit the U.S. government's international action space.
In this case, the United States may gradually adopt a contractionary international policy (retrenchment) to reduce the degree of external involvement, thereby allowing other regional powers to gain more influence. For example, China may further expand its regional influence in Asia.
Dalio finally quoted again the Big Cycle theory in his "Principles for Dealing with the Changing World Order" published in 2021, pointing out that the current political and social changes in the United States are similar to the stages experienced by large countries in history when wealth distribution is imbalanced, debt accumulation and internal order disintegrate.
He believed that the financial laws of the government and individuals were not essentially different: expenditures cannot exceed income for a long time without paying a price. Although the government can reduce the actual burden of debt repayment by printing money, the price may be the dilution of the value of the currency.
this article Ray Dalio talks about midterm elections: Trump becomes a lame president, China may expand influence in Asia first appeared in Chain News ABMedia。
