Ray Dalio calls out Trump: Promise to reduce the deficit now, or a debt crisis will inevitably erupt within three years!

Ray Dalio warns that the Trump administration must immediately commit to reducing the fiscal deficit, or the United States will face a severe debt crisis within three years.

On Monday Eastern Time, Ray Dalio, co-founder of the hedge fund Bridgewater and billionaire, stated in an interview with the Odd Lots podcast:

"If you don't take action, you're going to be in trouble. I can't tell you exactly when the crisis will hit, it's like a heart attack; you just get closer and closer to it. I guess the crisis will happen in about three years, possibly a year earlier or a year later."

U.S. Debt Problem Worsens, Buyers of U.S. Debt Dwindle

Dalio's warning comes as the Trump team attempts to cut the annual fiscal deficit while maintaining large-scale tax cuts. Data shows that the annual fiscal deficit in the U.S. has soared to $1.8 trillion, while Dalio urges the government to reduce the deficit to within 3% of GDP to guard against potential financial risks.

He emphasized that if the government does not take action, the consequences will be borne by you. At that time, if a debt crisis triggers economic turmoil, voters will not be satisfied, and the government must be held accountable.

Additionally, he is concerned that the U.S. needs to continuously issue new debt to repay old debt, but may now face a shortage of buyers. Dalio is not the only one worried; JP Morgan analysts also pointed out at the end of 2022 that the three main buyers of U.S. Treasury bonds—foreign central banks, domestic U.S. banks, and the Federal Reserve—have simultaneously withdrawn from the market for the first time.

Dalio stated:

"When you continue to add new debt on top of existing debt, the problem is not just the old debt, but you also need to find enough buyers to absorb the new debt. 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 calculate who the buyers are and how much we need to sell, I find a severe imbalance, and I know how this will play out."

As a seasoned investor, Dalio experienced the historic moment in 1971 when President Nixon announced the decoupling of the dollar from gold. He believes that today's market may face similar shocks—at some point, the U.S. government may take measures against countries holding large amounts of U.S. Treasury bonds, including stopping interest payments or even restructuring debt.

Dalio predicted: "The government may announce a debt restructuring, but they won't call it a default. They will say, 'We will be better off under this policy.'"

When asked about his views on a potential "Mar-a-Lago Agreement," Dalio expressed skepticism. He believes that even if the U.S. takes such measures, it will not lead to a depreciation of the dollar alone, but rather a decline of global currencies together:

"It's like a 'who is uglier' contest; central banks around the world will react, and the result may be that global currencies depreciate against gold or other hard assets, similar to the 1970s or even the 1930s."

Dalio's view is that the modern monetary system relies on credit creation, meaning that the issuance of currency is essentially based on debt. For example, when the government issues Treasury bonds, it is essentially borrowing money, while corresponding debt appears in the market Most modern economies have a monetary system based on debt rather than directly supported by physical assets like gold. One issue with this system is that if there is too much debt and investors lose confidence in it, the currency can rapidly depreciate, potentially leading to a financial crisis.

Given that the current global currencies (especially the US dollar) are based on a debt system, and that governments may devalue their currencies under debt pressure (such as through inflation or low-interest rate policies), Ray Dalio believes investors need to consider: Is there a stable alternative currency that does not rely on debt?

Dalio stated:

"Bitcoin may be one of the candidates and could even become a significant part. But what is the real alternative currency? Because debt is money, and money is essentially debt."

Dalio mentioned that he believes Bitcoin's advantage as a safe-haven asset lies in the fact that, unlike real estate, it is not fixed in one place, making it less susceptible to taxation or confiscation.

When asked if he is more optimistic about gold than ever before, Dalio replied, "Oh, yes. I think gold—I don't want to overemphasize gold, nor do I want people to rush to buy it... I hope everyone exercises restraint. What I want to say is: the uncertainty of the future far exceeds anyone's understanding of it. Therefore, we must always remain humble. What you need is reasonable asset diversification to build a robust investment portfolio."

He added, "A 'cautious' allocation of gold might be between 10% to 15% of the portfolio. Such a small portion of gold can provide protection and make the portfolio more diversified. But most importantly, ensure that you do not overly rely on a single asset."

Risk Warning and Disclaimer

Markets are risky, and investments should be made with caution. This article does not constitute personal investment advice and does not take into account the specific investment goals, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investing based on this is at your own risk