Against a backdrop of escalating geopolitical tensions and volatile capital markets, legendary investor Ray Dalio issued a warning on Tuesday, stating that the world is on the brink of a "capital war."
Dalio indicated that the globe is teetering on the edge of a capital war, which involves the "weaponization" of currency through measures such as trade embargoes, restricting other nations' access to domestic capital markets, or leveraging debt holdings as bargaining chips.
"We are at a tipping point," Dalio stated. "This means a capital war hasn't officially broken out yet, but we are very close. The situation could easily spiral out of control and descend into a capital war because all parties harbor fears."
He also mentioned that recent attempts by the Trump administration to bring the Danish territory of Greenland under US control have further intensified geopolitical strains.
Dalio warned that European investors holding dollar-denominated assets fear potential sanctions; conversely, the US worries about potentially losing access to European capital or lacking European purchasing support, creating a mutual deterrence fueled by fear.
According to research data from Citigroup, European investors accounted for 80% of overseas buyers of US Treasury bonds between April and November of last year.
"Capital and currency are the key," Dalio emphasized in Tuesday's interview. "We now see capital control measures being implemented globally, but it remains uncertain who will ultimately be impacted. So, we are on a dangerous precipice—it doesn't mean a capital war has started, but it is a legitimate concern."
Since returning to the White House last year, US President Trump has frequently imposed punitive tariffs on trade partners and political opponents, only to later revoke many of these measures. These erratic decisions have already triggered significant volatility in financial markets.
Dalio added that, historically, capital wars are often accompanied by the introduction of policies like foreign exchange controls and capital controls. He also noted that sovereign wealth funds, central banks, and other institutions have begun making "preparations and positioning" in advance to cope with potential future control measures.
Dalio mentioned that, looking back at history, capital wars often revolve around "major conflicts." Citing the period before the US entered World War II, he noted that US-Japan relations were highly tense, and the US escalated conflicts by imposing sanctions on Japan.
"One can easily foresee a similar scenario unfolding in today's world. Many national leaders are even discussing the interdependence between Europe and America—after all, the flip side of a trade deficit is essentially an imbalance in capital flows, and this state of capital imbalance can absolutely be weaponized."
Gold remains the premier hedge.
Dalio stated that despite a historic sell-off in precious metals leading to broadly lower prices, gold continues to be the best asset for wealth preservation. As of Tuesday, gold and silver prices were showing initial signs of recovery.
When asked if recent price fluctuations would undermine gold's status as a "safe haven for capital," Dalio responded, "Gold's property as a store of value does not change with daily price movements."
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