Key Words: Cutting off capital flows to China may just be the start, Ray Dalio says

This post was originally published on this site

Web Summit via Getty Images

Ray Dalio, founder of Bridgewater Associates

Ray Dalio, the founder of the world’s largest hedge fund, say reports of the U.S. limiting capital flows to China may just be the start.

The co-chief investment officer and co-chairman of Bridgewater Associates, known for his provocative takes, says wealth and political inequality is causing populism on both the left and the right, and that the limited ability of central banks to stimulate the economy will lead to more far-reaching actions — very large fiscal spending and large budget deficits that will have to be funded by substantially hiking taxes on the rich, printing money and the buying of debts coming from the deficits.

“Typically, this has led to capital flight as investors seek to escape these things, which has quite often led to capital controls that are intended to keep capital in the country and the currency so that it can more easily be taxed and/or devalued. So, naturally, I can’t help but wonder whether this extraordinary (i.e., nothing like this has happened in my lifetime) deviation from convention to restrict capital flows to China could be followed by these other steps when/if the circumstances that I’m describing unfold.”

Ray Dalio

With respect to China in particular, Dalio notes in a post to LinkedIn that the U.S. president can unilaterally cut off capital flows to China, freeze payments on the debts owed to China and use sanctions to inhibit non-American financial transactions with China.

The Treasury Department didn’t exactly put to rest a published report that the U.S. was considering a move to de-list Chinese companies from U.S. exchanges, only saying it wasn’t considering such a move at this time.

Despite blasting an initial Bloomberg News report on it as “fake news,” White House adviser Peter Navarro did say in an interview with CNBC there were significant issues on Chinese companies listed on U.S. exchanges.

U.S. stocks on Tuesday dropped sharply, with the Dow industrials DJIA, -1.28%  losing 343 points.