Billionaire investor Ray Dalio is sounding the alarm on what he calls an inevitable “debt/dollar crisis” unless U.S. policymakers confront the country's ballooning fiscal deficit with a mix of tax increases and spending cuts.
What Happened: On Monday, in a post on X, Dalio criticized popular political promises such as “I promise to not raise your taxes” and “I promise to not cut your benefits” as being fundamentally at odds with the current fiscal reality of the U.S. budget.
“There is no way that the deficit/debt bomb problem can be sustainably dealt with unless there is a mix of tax revenue increases and spending decreases that are determined in a bipartisan way,” the former hedge fund manager says.
Dalio proposes a 4% increase in tax revenue combined with a 4% cut in federal spending, a balanced approach that he says would help restore the balance between debt issuance and demand, leading to less pressure on interest rates, which in-turn helps support the markets and the economy, while helping shrink the deficit.
He says that both Democrats and Republicans in Washington understand this, but have been unwilling to act due to “absolutist” politics and fear of electoral backlash. “To me, that’s a tragedy,” he says.
Why It Matters: The famed founder of Bridgewater Associates has constantly warned about the dangers of rising U.S. debt and the risk it poses to the economy and the U.S. Dollar.
A month ago, he said that the risks of mounting U.S. debt were greater than what was being conveyed by the credit rating agencies.
Others have since echoed similar views, with Ross Gerber, of Gerber Kawasaki Wealth and Investment Management, proposing to let tax cuts expire and restoring full State and Local Tax (SALT) deductions, to help slash the U.S. federal deficit by trillions of dollars.
Economist Lyn Alden warned about the deficit last month, saying that “nothing stops this train,” as the fiscal trajectory of the nation is now governed by both mathematical inevitability and political intransigence.
“We’re in a system where the brakes are gone,” she says, adding that “raising interest rates only accelerates the federal deficit faster than it slows private borrowing.”
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