When Ray Dalio, founder of Bridgewater Associates and one of the most influential figures in global finance, warns that the United States is approaching a phase of internal collapse, it is an elite admission that the system, which once appeared self-correcting, stable and permanent, is now struggling to reproduce its own legitimacy — at home and increasingly abroad.

For much of the post-war era, America’s domestic authority and global standing reinforced one another. Institutional coherence underwrote international credibility, while global dominance masked internal fracture. However, that alignment is now breaking down.

As Washington’s ability to command consent within its own borders erodes, so too does the moral and political authority it once projected outward.

In a recent essay drawing on his 2021 book Principles for Dealing With the Changing World Order, Dalio argues that the United States is moving from “Phase Five” of a long historical cycle defined by economic stress, institutional decay and escalating internal conflict, toward “Phase Six,” a stage that in past societies has often involved civil war, revolution or fundamental regime rupture.

Dalio’s central stark claim is that when high debt, extreme inequality, political polarisation and declining institutional trust converge, societies lose the capacity to resolve conflict through established mechanisms. At that point, coercion begins to replace consent.

The view echoes long-standing analyses within comparative political economy and historical sociology that describe such moments as crises of hegemony, where ruling arrangements can no longer secure broad social consent and increasingly rely on force, surveillance or exceptional measures.

Major surveys reveal that Americans are deeply dissatisfied with democracy and its institutions. A Pew Research Centre poll in 2025 found 62 per cent of Americans unhappy with how democracy is working. Just 17 per cent say they trust the federal government to do what’s right most of the time – near historic lows.

Americans report unparalleled division: 88 per cent of US adults say there are strong conflicts between supporters of the two main parties (a higher rate than in almost any other country polled). Social cohesion is fraying: only 66 per cent of Americans feel “close” to others in the country – among the lowest share of any nation surveyed.

Crisis of political mediation

The intensity of political polarisation in the United States reflects a deeper breakdown in the institutions that once mediated class conflict, distributed resources and maintained political legitimacy.

According to the Pew Research Centre, more than 85 per cent of Americans believe politically motivated violence is increasing, while trust in the federal government has fallen to near-historic lows. Large majorities across party lines express scepticism that elections, courts and media institutions operate fairly.

Comparative surveys place the United States among the most polarised societies in the developed world.

Political scientists studying democratic erosion emphasise that polarisation becomes systemically dangerous when rival political camps no longer recognise each other as legitimate competitors.

At that point, democratic procedures cease to function as conflict-resolution mechanisms and instead become arenas for permanent contestation. Dalio’s observation that “rules are used as weapons” reflects precisely this condition: law and institutions no longer operate as neutral frameworks but as instruments in a zero-sum struggle.

Dalio places extraordinary weight on polarisation as a structural condition and argues that when political camps cease to see one another as legitimate participants in a shared system, rules transform from constraints into weapons. At that point, law no longer mediates conflict but, quite paradoxically, instead intensifies it.

The French philosopher Alain Badiou has diagnosed the present moment as one in which Western parliamentary democracy continues to function formally while losing its capacity to produce collective political meaning. For Badiou, such moments betray the exhaustion of a hegemonic political horizon, one in which elections persist that increasingly fail to resolve underlying antagonisms.

Dalio’s “Phase Five” corresponds closely to this condition. The United States retains the procedural shell of democracy, but its integrative function has weakened. Elections are no longer widely perceived as mechanisms of settlement, in which case the willingness to compromise, a prerequisite for democratic governance, evaporates.

Crisis of social reproduction

At the core of Dalio’s analysis is inequality. The United States has reached levels of income and wealth concentration comparable to the late Gilded Age. According to data from the Federal Reserve and the Congressional Budget Office, the top 10 per cent of households control more than 70 per cent of total wealth, while the bottom half owns less than 3 per cent.

This concentration is not incidental. Economists across ideological lines describe the US economy as deeply financialised, in which profit generation is increasingly disconnected from productive investment and instead routed through asset inflation, debt expansion and speculative activity. The result is a political economy that generates growth without broad prosperity.

Zia Qureshi of the Brookings Institution has argued that rising inequality undermines democratic stability by weakening social cohesion and eroding trust in institutions. Similar conclusions appear in IMF working papers, which link high inequality to political instability, lower growth sustainability and greater vulnerability to shocks.

When growth fails to translate into improved material conditions for large segments of society, legitimacy erodes. Redistribution becomes politically contentious, while the state increasingly struggles to reconcile elite accumulation with mass insecurity.

Financial exhaustion

The fiscal dimension of the US crisis is central to Dalio’s framework. Federal debt now exceeds 120 per cent of GDP – exceeding its post-World War II peak – and continues to rise even during periods of economic expansion. The IMF has repeatedly warned that US debt dynamics are unsustainable absent significant fiscal adjustment.

The Fund reports that US public debt will top 140 per cent of GDP by 2030 if current trends continue.

IMF officials warn that unless deficits are cut and buffers built, governments risk a “fiscal-financial doom loop”.

Historically, such debt burdens narrow the range of politically viable policy options. Governments facing chronic deficits must choose among higher taxation, spending cuts, or monetary expansion. Each option carries distributional consequences, and in highly unequal societies, those consequences are politically explosive.

Dalio stresses that when governments rely on monetary expansion to defer adjustment, they risk eroding the purchasing power of the currency and provoking capital flight. When they raise taxes, elite resistance intensifies. When they cut spending, the burden falls disproportionately on those already under strain.

Analysts term this a fiscal legitimacy trap in which the state lacks both the resources and the authority to impose solutions that would stabilise the system.

What distinguishes the current moment is that fiscal stress coincides with intense polarisation. There is no durable political coalition capable of enforcing long-term adjustment, nor a broad consensus on who should bear the costs. As Dalio notes, “there will be battles over who pays,” and history suggests such battles rarely remain confined to parliamentary debate.

According to Harvey’s analysis of neoliberal governance, financialised states rely increasingly on monetary instruments and emergency measures to manage contradiction. Over time, such strategies weaken democratic accountability and deepen social fragmentation.

Historically, such battles have rarely remained confined to legislative chambers. Once fiscal stress becomes existential, political struggle hardens.

Turn toward coercion

Similarly, the rise in politically motivated attacks, threats against public officials and the visibility of armed groups reflect a society in which disputes are dangerously framed as existential.

Analysts at the Centre for Strategic and International Studies document a sharp increase in domestic extremist plots since 2016.

Studies of democratic collapse show that democracies rarely fall through sudden coups. More often, they decay through incremental norm erosion, institutional capture, and the politicisation of state apparatuses.

Historian Niall Ferguson, who has studied both US and world history, likewise sees alarming parallels to Rome’s final days. He argues Americans have reached “a Glaswegian state of polarisation” – two clans (Republicans and Democrats) living in separate worlds – and that this latent factionalism is corrosive.

“I have some sense of being in the late republic in America today,” Ferguson warned.

“American institutions are being corroded by a latent civil war in which the stakes of political defeat become too high, just as happened to Rome. “History has always been against any republic lasting 250 years,” he adds, implying the US, which is nearing its 250th anniversary, is in its “late republican phase”.

Likewise, Brookings Institution analysts recently catalogued the factors creating America’s “tinderbox”, including “hot-button” cultural conflicts on abortion, gun rights, climate or immigration, that sharply divide states and regions.

They note a winner-take-all election environment that makes each contest a life-or-death struggle for one side, diminishing compromise. Most troubling, a huge share of Americans now suspect “the other side” is out to destroy democracy, accusing opponents of rigging elections or outlawing policies, and seeing them as existential enemies.

Widespread firearms and militias raise the stakes as over 400 million civilian guns (roughly 1.3 per person) and hundreds of armed groups (mostly radical-right) roam the country.

Brookings experts caution that any future conflict would look very different. The US no longer has a clean North–South split or state-sponsored militias ready to secede. Today’s armed groups are largely private and decentralised. Still, the 1860s remind Americans of the stakes: that “conflagration…cost over 600,000 lives” and showed what happens when political rifts turn to violence.

Brookings concludes that we cannot dismiss the danger outright: “We should not assume it could not happen,” the analysts write, even if a full-scale civil war is not inevitable.

The most revealing aspect of such warnings is that now they are articulated openly by figures at the apex of global finance.

Whether the United States responds through meaningful redistribution, institutional reconstruction, or deeper reliance on coercion remains unresolved. What is no longer credible is the assumption that the existing order will automatically correct itself.