‘Watch out for a burst’: Ray Dalio warns of century-high bubble risk as wealth-to-money gap hits 120-yr peak

Bridgewater Associates founder Ray Dalio has sounded a sweeping macroeconomic alarm, warning that the United States is approaching a dangerous convergence of financial excess, liquidity imbalances and historically high inequality—conditions that resemble the periods preceding the crashes of 1929, 2000 and 2008. 

In one of his most detailed analyses in recent years, Dalio wrote on X (formerly Twitter) that both investors and policymakers are ignoring “the simple mechanics” behind how bubbles form and ultimately burst.

According to Dalio, a bubble begins when financial wealth inflates far faster than the supply of actual money. It bursts when investors simultaneously need cash, forcing them to sell vast amounts of inflated assets into a system that is suddenly starved of liquidity.

“Bubbles occur when the amount of financial wealth becomes very large relative to the amount of money, and bubbles burst when there is a need for money that leads to the selling of wealth to get it,” he said. 

Century-high wealth-to-money imbalance 

Dalio’s argument is underscored by the first chart in his analysis, which tracks US equity wealth relative to total money supply from 1900 to 2024. The data shows this ratio now exceeds 400%, placing it not only above the levels seen during the 1929 mania but also beyond the extremes observed in 2000 during the dot-com boom and in 2021 at the peak of pandemic-era speculation. 

In each of those earlier episodes, financial wealth towered above the actual pool of money available to support it — leaving markets precariously dependent on continued inflows. Dalio argues that the U.S. has now reached an even more stretched position, increasing the likelihood that any sudden need for liquidity could generate a wave of selling strong enough to “overwhelm the system.” 

What happens next? 

Two additional datasets compare today’s valuations to the subsequent 10-year performance of equities, both in total nominal returns and inflation-adjusted real returns. 

In the second chart, the valuation measure — represented as a Z-score of the wealth-to-money ratio — shows that when this indicator sinks to deeply negative levels, it reflects extreme overvaluation relative to money supply. Historically, every time this happened, the following decade’s returns collapsed. The same pattern preceded the market stagnation after 1929 and the lost decade following the dot-com peak. 

Dalio notes that the valuation indicator today is again near the depths reached during those two earlier bubbles. Based on past cycles, this implies that nominal 10-year equity returns may fall to the low or mid-single digits, far below long-term averages. 

The third chart extends this insight to real returns. After both the 1929 crash and the early-2000s unwind, inflation-adjusted returns turned negative for several years. Current valuations, Dalio writes, mirror those periods closely, raising the risk that real gains could hover near zero or below for much of the next decade. 

“Bubbles don’t burst because people suddenly decide profits won’t be high enough,” he said. “They burst because the money flowing into the asset begins to dry up.” 

Income inequality at 100-yr extremes 

Dalio argues the danger is amplified by a second factor: the largest wealth and income divide in the US in nearly a century. 

The fourth chart — tracking the income share of the top 10% versus the bottom 90% — shows the ratio has climbed back above 90%, a level last seen in the late 1920s, just before the Great Depression. While the gap narrowed through the mid-20th century, it widened sharply from the 1980s onward and now sits at its highest point in approximately 100 years. 

Dalio warns that inequality at these levels is historically tied not only to economic fragility but also to political conflict, redistribution pressures and social instability, similar to the turbulence of the 1930s and 1970s. 

Wealth taxes could trigger forced selling 

Dalio also argues that democratic governments loaded with debt — chief among them the US — are running out of fiscal and political space. They cannot borrow much more due to declining demand from both domestic and foreign buyers. They cannot raise conventional taxes without alienating high-income earners. They cannot cut spending without intensifying social unrest. 

This leaves wealth taxation as the most likely next step. But Dalio warns that any serious attempt at taxing wealth — especially unrealized gains — would have destabilising consequences. US households collectively own around $150 trillion in wealth, but hold less than $5 trillion in cash. Even a modest 1-2% wealth tax would require Americans to produce $1–2 trillion in cash payments each year, almost all of which would have to come from selling assets. 

Dalio argues this would force massive liquidation of equities and private-market holdings, depress asset valuations, push borrowing costs higher, and accelerate capital flight — not only popping the bubble but deepening the subsequent bust. 

History’s Repeating Voice: 1929, 1971, 2000, 2008 

Throughout his analysis, Dalio draws parallels to past turning points. 

• 1929-33: A credit-fueled equity boom collapses into depression. 
• 1971: Excess US deficits prompt Nixon to sever the dollar’s gold linkage, triggering a sharp devaluation. 
• 2000: The tech bubble bursts after valuations detach from monetary fundamentals. 
• 2008: Credit expansion implodes, forcing central banks into unprecedented money creation. 

Dalio argues today’s environment echoes all of these: too much financial wealth relative to money, liquidity tightening, overextended leverage, and widening social divides. 

A risk cluster rarely seen together 

Dalio’s conclusion is stark. The data shows: 

• Equity wealth relative to money is at its highest level in at least 120 years. 
• The historical record suggests weak nominal and near-zero or negative real returns over the coming decade. 
• Income inequality is near pre-Depression extremes. 
• Political pressure for redistribution is rising alongside fiscal strain. 

When these forces combine, Dalio argues, markets and society both enter a precarious phase. 

“When the promises to deliver money are far greater than the amount of money that exists, and wealth needs to be sold to get that money, watch out for a bubble bursting,” he wrote. “And when that happens alongside big wealth gaps, watch out for big political and wealth changes.”