Bridgewater's Dalio: My Views on the Results of the U.S. Midterm Elections

*Author: [Ray Dalio, Founder of Bridgewater Associates](https://x.com/raydalio/status/2119913074844987405?s=46)*

*Compiled by: Jiahua, ChainCatcher*

Many people have asked me how I view the results of the U.S. midterm elections, so I decided to write down my thoughts. The changes in the seats of various government departments bring too many impacts to discuss all of them in this brief article, so I will focus only on the most important points.

My overall conclusion is: **These political changes will not alter the circumstances that government representatives must face. Our problems will not disappear, and most importantly, whether they can solve these problems through effective bipartisan cooperation or resort to inefficient confrontational methods.**

**More specifically, issues such as debt, wealth disparity, value differences, international geopolitical issues, climate issues, and technological issues will still exist, and the election results will not change the usual dynamics of wealth and power struggles. What the midterm elections changed is simply who will handle these issues and how they will handle them.**

**The most important question is whether political struggles and government dysfunction will increase or decrease. I believe that both struggles and dysfunction are likely to intensify.**

### Debt Issues Will Again Be in the Spotlight

We will soon see whether my judgment is correct, first by observing what happens during the congressional session before the current administration leaves office and what follows. This will affect many issues.

For example, we will see how the elected government representatives handle funding issues, more specifically, how the government spends and taxes. This issue will resurface when the temporary government funding signed by President Trump expires on December 11; subsequently, federal debt is expected to hit its ceiling in March 2027, at which point this issue will arise again; by the fall of 2027, the U.S. Treasury is expected to exhaust its available funding options, and this issue will surface once more.

The struggles surrounding these funding issues are likely to be intense, and the conflict and uncertainty may drive up the yields on short-term U.S. Treasuries and similar short-term bonds, as investors will want to avoid the uncertainty of not receiving payments on time. The market is also likely to become increasingly concerned about liquidity and credit risk, which will undermine confidence in U.S. Treasuries as the world's primary safe collateral. Similarly, Elizabeth Warren's chairmanship of the Senate Banking Committee is also likely to bring about struggles and changes that affect the economy and the market.

These are just a few examples of the many potential shocks that could occur.

The election results will also leave the U.S. with a politically hamstrung president who is under attack. He faces a conflict akin to a civil war (likely peaceful) and a populace and opposition that advocate for isolationism, while also dealing with severe debt and monetary issues. This will weaken his and America's influence internationally and may prompt the U.S. to withdraw from foreign engagements, thereby allowing the most powerful countries in each major geographical region to gain greater influence, such as China's influence in Asia.

As for what needs to be done, **I still believe that, in principle, the only path that may succeed for the U.S. and all democracies burdened by excessive debt and divided fiscally, socially, and politically, including France, other European countries, and the U.K., is for wise and capable moderates from both the left and right to join forces against the radicals and work together to address the tough issues. This requires them to reach a consensus and push the government and the populace to make difficult changes to restore national strength. I still believe this is difficult to achieve.**

From a political perspective, there have been many instances of such internal political changes throughout history. There have always been political divisions, and at least four different political positions exist regarding how to address these divisions. In order from left to right, they are: 1) far-left; 2) center-left; 3) center-right; 4) far-right.

As the situation deteriorates, these groups will become increasingly polarized, and the struggles between the left and right will escalate until one side prevails. Afterward, the moderates and radicals within the winning camp will again struggle for dominance. This struggle will continue to intensify for a straightforward reason: as wealth disparity and value differences widen, irreconcilable conflicts will increase. We are now seeing such struggles emerging within both the Republican and Democratic parties. I expect that struggles within and between the two parties will become significantly more pronounced in the future.

In my view, this political change stems from human nature. Throughout history, it has occurred in various places and is now happening in almost every country, albeit with some subtle differences. For example, China, due to its culture, primarily Confucian culture, has a strong hierarchical order, which has always existed; however, the degree of this order oscillates between being extremely rigid and more open, allowing for discussion.

Currently in the U.S., the radicals in both parties are demanding to take control, leading to near-violent struggles between the two parties, which are now evolving into struggles within each party. In many other countries, this situation may lead to the emergence of more political parties. However, considering that the resources of the existing two parties far exceed those of any potential new parties, splitting into more parties is generally considered impractical.

### The U.S. Needs to Make Difficult Fiscal Adjustments

Regarding the issues debated between the two parties, I have discussed my views for a long time, and you probably understand my perspective: there are usually five main forces at play in a large cycle; how these forces have evolved this time; and which stage we are currently in within the large cycle. Therefore, I will not elaborate further.

Additionally, I believe you know what is healthy and what is unhealthy, as these are fundamental and obvious, so I trust you can judge whether what is happening now is healthy or unhealthy. I also believe you can understand what the U.S. needs to do to regain fiscal strength, as this is not complicated, and the reasoning has always been the same.

For example, the basic financial principle regarding borrowing applies equally to governments and individuals: you cannot continuously spend more than you earn without facing consequences. The difference is that the government can print money, making debt easier to repay, but this will devalue the debt. These principles have been clear for thousands of years.

Therefore, we should know where the U.S. currently stands, and we should understand that the government must make painful but beneficial adjustments to restore America's productive capacity and fiscal strength; there is no way to bypass these necessary measures. However, this seems unlikely to happen, as the voting populace is unwilling to undertake the difficult tasks required to rectify the nation's finances. For example, they do not want tax increases and/or benefit cuts, nor can they reach a consensus on how to handle the debt. This issue will soon become more urgent.

### The Effectiveness of the Democratic System Remains in Question

As someone who believes that only through the cooperation of wise moderates from both the left and right can a successful path be found, **I think it is worth noting, and very important: most Democrats elected in swing states appear to be almost indistinguishable from moderate Republicans. Therefore, simply labeling them as "Democrats" and describing the political divide as a divide between Democrats and Republicans oversimplifies the situation. Most Democrats elected in previously "red" states, although also called Democrats, are completely different from radical left Democrats, such as American Democratic Socialists.**

It is also noteworthy that democratic norms of voting and accepting election results have been followed across the country. While this is a significant victory for democracy, the critical question of whether the democratic system can operate effectively still remains.

In 2021, my book "Principles: Life and Work" was published. In it, I predicted what would happen afterward by describing the large cycle and the causal relationships that drive it through six stages. In the book, I described the later stages of the large cycle, particularly focusing on the oscillation of domestic order between order and disorder in the fifth and sixth stages. Relevant content can be found on pages 167 to 191 of the book, and it can also be found in [this article](https://www.linkedin.com/pulse/civil-war-ray-dalio-ippje?utm_source=share&utm_medium=guest_desktop&utm_campaign=copy) I shared last year.

As Winston Churchill said in 1948, "Those who cannot remember the past are condemned to repeat it."

Since I have written too much, I have decided to wait a few days before discussing what I believe the Democratic Party, Republican Party, or bipartisan cooperation needs to provide to win in the future. If they can always remember this most important thing, they need to reach a consensus on what can bring about this result and then work together to achieve it; everything will be much better. I will explain in the next article.