Donald Trump’s low tax and high spending policies will trigger a fiscal “heart attack” in the US, a billionaire hedge fund boss has warned.
Ray Dalio, the founder of hedge fund giant Bridgewater Associates, said the combination of tax cuts and soaring government spending would push US debt to unsustainable levels and trigger a major financial meltdown before the end of the incumbent president’s term.
Mr Dalio told Bloomberg’s Odd Lots podcast: “When the economy, and this heart attack of sorts, comes along, then you’re going to find yourself that the voters are not going to be very happy … It would be very much like the 1970s, which was very much like the 1930s.”
America was gripped by “stagflation” in the 1970s, when huge debts from the Vietnam war and US domestic social programmes combined with low growth to force Richard Nixon’s move away from the gold standard.
The 1930s saw the US struggle through the Great Depression, a long economic slump triggered by the Wall Street crash of 1929, when a market panic led to a 90pc drop in the value of the US stock market.
Mr Dalio is considered one of the world’s most influential investors. He made billions betting on market movements through his hedge fund Bridgewater Associates, including predicting the 2008 financial crash.
Since entering office in January, Mr Trump has pushed to extend billions worth of tax cuts he previously introduced during his first term in office in 2017. He has failed to outline clear plans to pay for these tax cuts by cutting spending, though he has deputised Elon Musk to slash federal spending.
The tax breaks introduced by Mr Trump in 2017 have already driven a sharp increase in America’s deficit to its current level of $1.8 trillion (£1.4 trillion). The debt has become more of a burden as interest rates have risen in recent years, pushing up debt costs.
Mr Dalio said the US was on course for a major economic crisis within the next few years: “You’re getting closer. My guess would be three years, give or take a year, something like that.”
The 75-year-old billionaire has previously been highly critical of Mr Trump and warned that the US is “on the brink” of a civil war.
Mr Dalio’s warning comes as hedge funds ramp up bets against the US stocks amid wider concerns that America’s economy is heading for a slump.
Bets against US companies are now at their highest level since September 2022, when interest rate increases and Liz Truss’s mini-Budget in Britain triggered a broad market panic.
Investors are currently feeling almost as pessimistic about the US economy as they were in the midst of the 2008 financial crash.
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