Ray Dalio Warns Against Decreasing Value Of US Dollar Amid Mounting Government Debt: 'Risks Are Greater Than The Rating Agencies Are Conveying'

Billionaire investor Ray Dalio has warned that the risks of mounting U.S. government debt were far greater than the credit rating agencies were conveying.

What Happened: Dalio, the founder of Bridgewater Associates, took to X after the Moody’s downgrade and highlighted the concerns raised about the increasing government debt by saying that “credit ratings understate credit risks,” as they only consider the probability of default and the loss given a default by the government.

However, he explains that the risks are higher than conveyed because the government could try to print money to repay its debt to reduce it, which in turn causes inflation and affects the domestic currency of the country.

Dalio underscores that printing money could cause the holders of the bonds to suffer losses from the decreased value of the money, rather than the decreased quantity of money. Implying that a decreased value of money is a cause of inflation.

“Said differently, for those who care about the value of their money, the risks for U.S. government debt are greater than the rating agencies are conveying,” he argued.

Kathy Jones, the chief fixed income strategist at Schwab Center for Financial Research, reiterated this point by sharing the chart of the U.S. Dollar Spot Index, which has fallen 7.62% year-to-date.

While she acknowledged that Moody’s commentary had nothing new about the economy, which the economists did not already know, however, the downgrade was quite telling about the “unsustainable fiscal path.”

“But dollar continues lower. The mix of policies – tariffs, re-shoring, shrinking trade deficit, and tax cuts expanding deficit add up to weaker dollar,” she said, confirming Dalio’s point about the decreasing value of money.

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Why It Matters: As per the Quantity Theory of Money in economics, printing money to pay off debt increases the money supply without a corresponding increase in the supply of goods and services.

This means there’s more money chasing the same amount of available items, leading to a decrease in the value of the domestic currency and causing inflation.

Moody’s downgraded the U.S. long-term credit rating from Aaa to Aa1, and forecasted the debt-to-GDP ratio to rise from nearly 100% in 2025 to approximately 130% by 2035. The agency also specifically cited the extension of Trump’s 2017 tax cuts as a key reason for its decision to downgrade the U.S. credit rating from Aaa to Aa1 on May 16, 2025.

A late March statement from Moody’s highlighted that the U.S. faces significantly greater challenges in affording its debt compared to other Aaa-rated and highly-rated sovereign nations, even in a strong economic environment.

Price Action: The SPDR S&P 500 ETF Trust SPY and Invesco QQQ Trust ETF QQQ, which track the S&P 500 index and Nasdaq 100 index, respectively, rose on Monday. The SPY was up 0.11% to $594.85, while the QQQ advanced 0.096% to $522.01, according to Benzinga Pro data.

On Tuesday, the futures of the S&P 500, Dow Jones, and Nasdaq 100 indices were trading slightly lower.

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