Hedge fund titan Ray Dalio has warned for years that money can become a weapon in geopolitical conflicts. Bond markets are beginning to reflect that risk. (Photo by Amal Alhasan/Getty Images for Fortune Media)
Getty Images for Fortune Media
The bond market pushed back Tuesday.
The yield on the U.S. 10-year Treasury rose to 4.29%. That was up 0.06 percentage points on the day, pushing the benchmark to its highest level since September, when short term rates were 75 basis points higher than they are now. That is unusual. It means global investors are selling long term U.S. government debt and demanding higher returns, even as the Fed moves in the opposite direction.
The move came as President Trump revived tariff threats. Still miffed over not being awarded the Nobel Peace Prize in 2025, Trump said Saturday that imports from eight NATO countries would face tariffs starting at 10% on Feb. 1 and rising to 25% by June 1 unless they support a U.S. purchase of Greenland. He later threatened 200% tariffs on French wine and champagne after French President Emmanuel Macron declined to join Trump’s newly created “Board of Peace.” Investors, apparently upset over the self-imposed uncertainty created by Trump, responded by demanding higher returns to hold U.S. debt.
Against that backdrop, legendary investor Ray Dalio issued a familiar warning from the World Economic Forum in Davos, Switzerland. Dalio, whose net worth is $15.4 billion, is the founder of Bridgewater Associates, among the world’s largest and most successful hedge funds with over $90 billion in assets.
“On the other side of trade deficits and trade wars, there are capital and capital wars,” Dalio told CNBC from Davos. “If you take the conflicts, you can’t ignore the possibility of the capital wars. In other words, maybe there’s not the same inclination to buy U.S. debt and so on.”
The billionaire has been talking about capital wars for years. He began writing about them publicly as early as 2018 and expanded the idea in his 2021 book Principles for Dealing With the Changing World Order.
In plain terms, a capital war is what happens when money becomes a weapon.
Trade wars focus on goods. Tariffs go up. Imports slow. Exports get blocked. Capital wars go a step further. They target the flow of money that finances trade in the first place.
When a country runs a trade deficit, it must be funded. That funding often comes from abroad. Foreign governments, institutions, and investors buy that country’s bonds, stocks, or currency.
Over time, those financial ties grow large. Foreign governments including China and Japan, own about 25% of the United States’ $38 trillion in debt outstanding.
In a capital war, those ties are used as leverage for coercion. Countries can freeze or seize foreign assets. They can block access to capital markets. They can restrict lending, investment, or payment systems.
Dalio’s research shows this pattern repeating throughout history.
He traces examples back to the 1600s, when the Dutch Republic used naval blockades to dominate global trade, cut off rivals like Portugal from key routes, and ultimately bankrupt competitors such as the Portuguese and Spanish trading empires. He points to the years before World War I, when Germany restricted Russia’s access to European capital markets, contributing to financial stress that weakened the Russian economy and fueled internal instability. He also highlights the run up to World War II, when embargoes and asset seizures, including the U.S. oil embargo on Japan, escalated economic pressure well before fighting began. In modern conflicts, he points to sanctions on Russia, Iran, and North Korea, where asset freezes, bans on dollar transactions, and exclusion from global payment systems have been used to isolate economies and limit their ability to fund trade, government spending, and military activity.
The United States has unusual power in this kind of fight. The dollar is the world’s reserve currency. Much of global trade and finance runs through it with nearly 60% of global central bank reserves held in U.S.of dollars. That gives Washington leverage over the global financial system.
It also creates a vulnerability.
If geopolitical conflict intensifies, foreign investors may decide to shun U.S. dollar denominated securities and reduce purchases of U.S. debt or even sell it. Assets that cannot be frozen, sanctioned, or controlled by another government, like bitcoin, may become preferable.
“When you have conflicts, international geopolitical conflicts, even allies do not want to hold each other’s debt,” he said. “They prefer to go to a hard currency. This is logical and it’s factual, and it’s repeated throughout world history.”
By hard currency, Dalio is referring to assets outside the financial system. Gold is the most obvious example and the one the investors, unsurprisingly, flocked to on Tuesday.
The yellow metal rose 3.25% on the day, on pace for its strongest daily return since October. In the last year gold has appreciated 75% to the lofty level of $4,053 per ounce. Single day jumps of that size are uncommon for the commodity. Gold has finished up 3% or more in a single day just 47 times since 2004, or, just once in every 113 trading sessions over that time. Bitcoin, also ostensibly outside of government control, has fallen 4% in the past 24 hours to $89,341 and over the last 12 months has declined 12%.
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Source: https://www.forbes.com/sites/brandonkochkodin/2026/01/20/hedge-fund-billionaire-ray-dalio-warns-of-capital-wars-heres-what-he-means/
