Billionaire Ray Dalio, co-founder of the U.S. hedge fund Bridgewater Associates, warned that the Trump administration must immediately commit to reducing the fiscal deficit, otherwise the United States will face a serious debt crisis within three years.
If you don't act, you will be in trouble. I can't tell you exactly when the crisis will break out, just like a heart attack, you will only get closer and closer to it. I guess the crisis will happen in about three years, maybe a year earlier or a year later.
U.S. debt problems are worsening, and buyers of U.S. debt are leaving
Dalio's warning comes as the Trump team tries to cut the annual fiscal deficit while maintaining a massive tax cut policy. Data shows that the annual fiscal deficit of the United States has soared to 1.8 trillion US dollars, and Dalio urged the government to reduce the deficit to less than 3% of GDP to prevent potential financial risks.
He stressed that if the government does not take action, the consequences will be borne by you. By then, if the debt crisis triggers economic turmoil, voters will not be satisfied, and the government must be responsible for it.
In addition, he is worried that the United States needs to continue to issue new debts to repay old debts, but now it may face the problem of insufficient buyers. Dalio is not the only one who is worried. Analysts at JPMorgan Chase also pointed out at the end of 2022 that the three major buyers of U.S. Treasuries-foreign central banks, domestic banks in the United States and the Federal Reserve-withdrew from the market at the same time for the first time.
Dalio said:
When you continue to add new debts on top of existing debts, the problem is not just the old debts, but you also need to find enough buyers to digest the new debts. You have to sell these bonds to individuals, institutions, central banks or sovereign wealth funds.
Today, the world is facing increased sanctions and an oversupply of bonds. When I calculated who the buyers are and how much we need to sell, I found a serious imbalance, and I knew how this situation would develop.
As a senior investor, Dalio experienced the historic moment when President Nixon announced the decoupling of the dollar from gold in 1971.
He believes that the market today may face a similar shock-the US government may take measures against countries holding a large amount of US Treasury bonds at some point, including stopping interest payments or even restructuring debts.
Dalio predicted: "The government may announce a restructuring of the debt, but they won't call it a default. They'll say 'we're better off under this policy.'"
Questioning Potential 'Mar-a-Lago Agreement'
When asked what he thought of a potential 'Mar-a-Lago Agreement,' Dalio expressed doubts. He believes that even if the United States takes such measures, it will not lead to the depreciation of the dollar alone, but a common decline in global currencies: "It's like a competition of 'who is uglier', and central banks will respond, and the result may be a depreciation of global currencies relative to gold or other hard assets, like in the 1970s or even the 1930s." Dalio's view is that the modern monetary system relies on credit creation, that is, the issuance of currency is essentially based on debt. For example, when a government issues treasury bonds, it is actually borrowing money, and corresponding debt appears in the market. The monetary system of most modern economies is based on debt, rather than being directly backed by physical assets (such as gold). One problem with this system is that if there is too much debt and investors lose confidence in it, the currency will depreciate rapidly, and may even lead to a financial crisis.
Optimistic about gold and Bitcoin
Since the current global currencies (especially the US dollar) are based on a debt system, and governments may devalue their currencies under debt pressure (such as through inflation or low interest rate policies), Dalio believes that investors need to think: Is there an alternative currency that does not rely on debt and is relatively stable?
Dalio said:
"Bitcoin may be one of the candidates, and it may even become a very important part. But what is the real alternative currency? Because debt is money, and money is essentially debt."
Dalio said that he believes that the advantage of Bitcoin as a safe-haven asset is that, unlike real estate, it will not be fixed to a certain place, so it is not easily taxed or confiscated.
When asked if he is more bullish on gold than before, Dalio replied: "Oh, yes. I think gold - I don't want to overemphasize gold, and I don't want people to rush to buy... I hope everyone will be restrained. What I want to say is: The uncertainty of the future is far greater than anyone's understanding of the future. Therefore, we must always remain humble. What you need is a reasonable diversification of assets to build a sound portfolio."
He added, "A 'prudent' gold allocation ratio may be between 10% and 15% of the portfolio. Such a small amount of gold can play a protective role and make the portfolio more diversified. But the most important thing is to make sure you are not overly dependent on a single asset."
There are risks in the market, investment should be cautious, please make independent judgments and decisions.
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