The founder and chief investment officer of Bridgewater Associates, the world’s largest hedge fund firm, has warned that the government could “impose prohibitions against capital movements” into assets such as bitcoin. He added that regulators may also impose changes in taxes that “could be more shocking than expected.”
Ray Dalio Warns About Government Prohibitions and Taxes
Ray Dalio, founder and chief investment officer of Bridgewater Associates, wrote a post on Linkedin last week entitled: “Why in the World Would You Own Bonds When…”
He pointed out that the bond markets currently offer “ridiculously low yields,” which “do not meet these asset holders’ funding needs.” The executive wrote, “There is now over $75 trillion of US debt assets of varying maturities,” adding that their holders will at some point want to sell them to get cash to buy goods and services with.
However, Bridgewater’s chief investment officer estimates that “at current valuations, there is way too much money in these financial assets for it to be a realistic expectation that any significant percentage of that bond money can be turned into cash and exchanged for goods and services.” He elaborated: “It has to be accommodated … via printing a lot of money and devaluing it, and restructuring a lot of debt and government finances, usually including large increases in taxes.”
Dalio explained: “Based both on how things have worked historically and what is happening now, I am confident that tax changes will also play an important role in driving capital flows to different investment assets and different locations, and those movements will influence market movements.”
The billionaire fund manager emphasized that “If history and logic are to be a guide, policymakers who are short of money will raise taxes and won’t like these capital movements out of debt assets and into other storehold of wealth assets and other tax domains,” warning:
They could very well impose prohibitions against capital movements to other assets (e.g., gold, bitcoin, etc.) and other locations. These tax changes could be more shocking than expected.
The Bridgewater Associates founder used Elizabeth Warren’s proposed wealth tax as an example, stating that it “is of an unprecedented size.” Citing his study of “wealth taxes in other countries at other times,” he expects this proposal “will most likely lead to more capital outflows and other moves to evade these taxes.”
Consequently, “The United States could become perceived as a place that is inhospitable to capitalism and capitalists,” Dalio opined, emphasizing that “the chances of a sizable wealth tax bill passing over the next few years are significant.” In conclusion, the Bridgewater executive cautioned:
One should be mindful of tax changes and the possibility of capital controls.
Dalio has been studying bitcoin over the recent months. In November last year, he admitted that he may be wrong about bitcoin but was nonetheless worried about governments outlawing cryptocurrency. In December, he said bitcoin could “serve as a diversifier to gold and other such storehold of wealth assets.” Then, in January this year, he said that “bitcoin is one hell of an invention,” revealing that his firm looking closely at the cryptocurrency.