Billionaire Ray Dalio warns of 'very scary' mix of bad economics and bad politics in West

Bridgewater founder says cracks are beginning to appear in venture capital and private equity

With western democracies under pressure to balance efforts to achieve economic growth and social cohesion, one of America’s most prominent investors has praised the UAE for its vibrant economy and visionary leadership.

Billionaire Ray Dalio said the success of the country "really began with one man" – UAE Founding Father, the late Sheikh Zayed bin Sultan Al Nahyan.

“I would say one of the most important things for any country is to educate your children well and make them civil, then have them be productive in a productive environment," Mr Dalio told On the Record with Hadley Gamble. "There’s a combination of attributes [in the UAE] that make it very appealing and vibrant.”

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The renowned American investor, who is founder and chief executive of Bridgewater Associates, spoke candidly about where he believes the US economy is heading. “There's a risk as we come into, let's say, the next two years ... the confluence between a bad economy and bad politics is a very scary thing,” he said.

Mr Dalio said he has concerns about US President Donald Trump’s tense relationship with Fed chair Jerome Powell, whose term is set to end in May next year. But the investor also worries about the central bank's long-term strategy and its impact on Americans.

“[For individuals] I think that we're going to come into a period of time where you're going to start to see cracks appear,” Mr Dalio said. "For example, when interest rates went up, a lot of holders of debt did not experience it because they hadn't the maturity of their debt. But now those debts are maturing and they're having to reset at a higher interest rate.

"You’re starting to see the cracks in venture capital and you're starting in private equity … that’s not something that's easily and effectively dealt with by just making everything easier."

He warned that failure to manage debt and monetary policy could cause permanent damage to the system. With populism seeping into politics across the West, Mr Dalio said leaders must prioritise the common good over individual interests.

“There’s the answer for the society and there’s the answer for the individual. They’re two different things,” he added.

Describing the issues facing Europe today, Mr Dalio admitted that leaders face a lose-lose situation, as countries including the UK, France and Germany struggle to cope with low growth and rising social expectations. “You create this conflict [in the UK]. You can’t raise taxes and you can’t cut spending and you can’t borrow more,” he said. "So then you have this dynamic where you’ve had four prime ministers in the last five years. The same is true for France. It doesn’t work."

Speaking of the situation in the US, Mr Dalio said people were “too quick” to judge Mr Trump for the issues he chooses to tackle, saying that he needs to address foreign and domestic problems.

“I’m not ideological," Mr Dalio said. “I'm just a guy who has to understand and bet on what's going to happen … and if the Democrats take the House [of Representatives], you're going to see a crack in the system. You’re going to see a powerful Democrat-led House in a war with the other side. And that's going to make things tougher."

Despite his fears, he remained unapologetically a globalist. He said that, while countries are becoming more isolationist, “global business deals and finance have never been more global".