Trump, the “lame duck,” and the battle over public finances: Ray Dalio assesses the fallout from the U.S. election
The billionaire is convinced that disputes over the budget and the national debt will hit the U.S. Treasury bond market
Billionaire Ray Dalio believes that now that the Democrats have regained control of Congress, U.S. President Donald Trump will become a “lame duck” and face a fierce internal political struggle. Photo: The White House
Following the results of the U.S. midterm elections, the Democrats have regained a majority in both houses of Congress. According to Ray Dalio, founder of Bridgewater Associates, the U.S. is now entering a period of even more intense political polarization. And that’s bad news for investors.
According to Dalio, the first signs of such a standoff will become apparent as early as the current session of Congress, when outgoing lawmakers will remain in office until the new Congress takes office—that is, until early January 2027.
On December 11, Dalio writes, the temporary government funding bill—which U.S. President Donald Trump signed in September to avoid a government shutdown ahead of the congressional elections—will expire. If lawmakers are unable to reach an agreement this time, some federal agencies will suspend operations. And then the new Congress will face a problem: in March 2027, the federal debt could reach the statutory debt ceiling. And in the fall of 2027, the Treasury Department may exhaust its temporary options for meeting the government’s obligations.
The battle over these funding issues is likely to be extremely fierce, and political gridlock and uncertainty will lead to a rise in yields on U.S. Treasury bills and other similar short-term government securities: Investors will seek to avoid the risk of delays in government payments. In addition, concerns about liquidity and credit risks are likely to intensify, which could undermine confidence in U.S. Treasury securities as the primary reliable anchor of the global financial system.
Furthermore, Dalio believes that after the election, Donald Trump will become a “lame duck.” He will face fierce internal political struggles and “attacks from all sides” amid a sort of “probably peaceful” civil war, the investor wrote.
The situation will be complicated by isolationist sentiments in society and among the opposition, as well as the U.S.’s problems with its national debt and public finances. Dalio believes that this will weaken Trump’s and the U.S.’s position on the international stage and, conversely, strengthen the position of other countries in their respective regions—for example, China in Asia.
Dalio believes that the current political polarization in the U.S. is unfolding as expected: as wealth inequality and differences in values grow, the struggle between the left and the right intensifies, and after one side wins, the struggle shifts to one between moderate politicians and radicals for control of the victorious camp. Such conflicts are already emerging within both major American political parties.
Dario writes that the confrontation between the Republican and Democratic parties—as well as within each party—will intensify in the future. He considers it unlikely that, under such conditions, the U.S. will be able to take the necessary measures to strengthen its fiscal policy. Voters oppose tax increases and cuts to social benefits, and there is no unified approach to resolving the issue of public debt. The government could ease debt repayment by printing money, but this would lead to the devaluation of debt obligations.
Dalio sees only one way to resolve all these issues. This applies both to the United States and to other “over-indebted democracies that are financially, socially, and politically fractured and facing similar problems”—a category that includes the United Kingdom, France, and other European countries.
This path requires that strong and competent moderate politicians from both the left and the right unite against extremists in order to effectively address complex problems. To do so, they will have to reach a consensus and convince the government and the country’s citizens to accept the difficult measures necessary for the country to become strong again.
However, he considers such a scenario “extremely unlikely.”
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This article was AI-translated and verified by a human editor
