U.S. Debt Surge Could Trigger More Money Printing, Warns Ray Dalio

Billionaire investor Ray Dalio, the founder of Bridgewater Associates, recently expressed concerns that the United States is likely to resort to printing more money as the nation’s debt continues to escalate. During his appearance at All-In Summit 2023, Dalio emphasized that the U.S. could find it challenging to meet its financial commitments due to the mounting debt.

The 74-year-old American, whose net worth is estimated to be around $15.4 billion (as of 19 September 2023), created the asset management firm Bridgewater Associates from his New York City apartment just two years after receiving his MBA from Harvard Business School.

Dalio pointed out that the increasing levels of national debt could trigger a recession, compelling the government to implement another round of money printing. He elaborated that as debt grows in proportion to income, the cost of servicing that debt also rises, reducing consumer spending and eventually leading to the necessity of printing more money.

As per the latest data from the U.S. Treasury Department, the country’s national debt has reached $33.04 trillion. Dalio warned that this situation poses a “significant risk” for the U.S., particularly for those holding U.S. bonds. He explained that if the government prints more money, the dollar’s value would decline, thereby affecting the value of U.S. bonds. This could result in bondholders selling off their assets if they perceive that the returns are no longer attractive.

Dalio said:

“The big risk comes when they don’t want to hold those bonds anymore because of the supply-demand…. because [when a country] has a deficit, it has to borrow, and so it sells its bonds … Who are the buyers of the bonds? Why do they buy? The buyers of bonds buy because there’s an attractive return. Not only do you have those amounts of bonds, but when they start to realize that [they’re] not getting good returns on those bonds, they can sell those bonds.“

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Earlier this month, Dalio took to LinkedIn to discuss the unexpected strength of the economy, even as the Federal Reserve tightens its monetary policy.

Ray Dalio attributed the economic resilience of the private sector to a wealth shift from the public sector and bondholders, initiated during 2020 and 2021. This period saw massive budget deficits and central bank bond purchases, insulating households and businesses from the Federal Reserve’s rapid policy shifts.

According to Dalio, the private sector remained robust despite policy rollbacks in 2022 due to rising inflation and lower unemployment. Dalio expressed concern over the worsening financial health of central governments and banks, burdened by debt obligations. He warned that they might turn to taxation and money printing to meet these obligations, posing long-term risks.

Dalio referred to his 2018 book, outlining the current “Monetary Policy 3” stage, which could lead to slow growth and high inflation. He also cautioned about a self-reinforcing debt spiral and mentioned other factors like conflicts, climate change costs, and disruptive technologies that could impact the economy.

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