Yahoo Finance Billionaire warns extreme inequality could trigger ‘terrible civil war’
Billionaire investor Ray Dalio has warned that the US is on the verge of a “terrible civil war” if widening inequality isn’t repaired, in a series of tweets this week.
The US$16.9 billion (AU$22 billion) founder of the Bridgewater Associates hedge fund said the US had reached an “inflection point” where it will either change direction to work together for “peace and prosperity”, or enter a type of “hell of fighting”.
“Good words and spirit aren’t enough,” Dalio tweeted.
“People will have to agree on both how to grow the pie and how to divide it well. That will require revolutionary change.”
Dalio has been vocal about his concerns for the future of America, telling the Yahoo Finance All markets Summit that the COVID-19 downturn echoes other cycles through history in which central banks’ decisions to print money has worsened the wealth gap.
“Those who have financial assets do better than those who don't have financial assets. And you have a wider and wider wealth gap, and when you have that wider wealth gap and then you have another downturn in an economy, that's a formula for a lot of conflict,” he said.
Speaking this week, Dalio said that while he’s hopeful that the Joe Biden administration will repair some of the damage done in the last few years, the country is in a “terrible financial state and terribly divided”.
“I will monitor how those good intentions are turning into good actions and keep you posted.”
Investors’ warning: A ‘K-shaped recovery’ is on the way
Dalio’s warning comes amid increasing concern that the economic recovery will only favour some.
The COVID-19 downturn has seen global share markets take precipitous dips before etching record recoveries, despite high levels of unemployment and stagnating wage growth.
And according to anti-poverty organisation Oxfam, the 1,000 richest people recovered their COVID-19 losses within nine months. However, for the world’s poorest people, it will take a decade to return to their financial position before the virus hit. The world’s richest 10 men have also seen their wealth grow by half a trillion dollars, which is enough to provide the entire world with a COVID-19 vaccine.
In a private letter to investors, the founder of the Baupost Group hedge fund Seth Klarman said the market is acting irrationally and broader economic decisions from the US Federal Reserve have triggered a “K” shaped recovery, which will see some groups’ economic fortunes rebound at a much faster and higher rate than others.
This recovery has seen “the fortunes of those already at the top bounding swiftly upward, while those at the bottom remain on a downslope without end”, Klarman said.
Saxo Bank also warned that a worsening K-shaped recovery is an “outrageous” but plausible occurence for 2021, and that it stands to “tear at the social fabric”.
“Financialisaton of the economy has meant that a single income is not nearly enough to support a family and technology is another driver, with the growing, wage-deflationary forces of software, AI and automation eroding a widening swath of jobs across industries,” Saxo bank said.
The theory of a K-shaped recovery gained credence during the COVID-19 pandemic, with economists and investors noting that a K-shaped recovery characterises the stories of those who still work compared to those who are unemployed, and those who work in thriving industries compared to those who work in dying industries.
The Pew Research Centre found the K-shaped recovery is a trend occurring across racial, generational and class lines. In America, Black and Hispanic people, low-income families and young adults have been hardest hit by the pandemic and have had the hardest time recovering.
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