From NBCUniversal: 2024-09-18 23:03:28

Ray Dalio, co-chairman of Bridgewater Associates, comments on the U.S. Federal Reserve’s interest rate cuts, highlighting the significant amount of debt in the U.S. economy and the challenges faced by the central bank in maintaining a balance between high interest rates and debt sustainability.

The U.S. Treasury Department reports that over $1 trillion has been spent on interest payments for the national debt of $35.3 trillion this year, coinciding with a rise in the budget deficit approaching $2 trillion. Dalio lists debt, money, and the economic cycle as influential forces affecting global economies.

Governments worldwide incurred record debt burdens during the pandemic to implement economic measures to prevent collapse. Dalio expresses concern over the increasing amount of debt created by governments, which could lead to a depreciation in the value of debts and a scenario where the markets may see low interest rates.

Dalio raises apprehensions about debt sustainability regardless of the outcome of the upcoming U.S. presidential election, as he anticipates a path resembling Japan’s, with artificially low interest rates leading to a depreciation in the value of bonds. He criticizes the lack of priority for debt sustainability from past and present political figures.

The billionaire investor warns about potential negative effects if the Fed intervenes in the debt markets, leading to a situation similar to the 1970s or the period from 1930 to 1945, where all currencies could devalue. Dalio plans to underweight debt assets, emphasizing his disinterest in debt instruments like bonds for his portfolio.

Read more: Ray Dalio says the Fed faces a tough balancing act