The US is at a low risk of an imminent debt crisis — but high risk in the long term, billionaire investor Ray Dalio writes in a new book. The US government debt situation is “nearing the point of no return” and approaching a “death spiral” that could threaten the stability of the world’s largest economy, he writes in the book, “How Countries Go Broke: The Big Cycle,” published Tuesday. Some economists and investors have been sounding the alarm about the deficit for years. But this year, Wall Street has begun to heed caution as President Donald Trump’s tariffs and tax bill agenda have stoked volatility in the bond market, which is the usually quiet bedrock of the US and global economies. Investors are increasingly concerned about the potential for Trump’s “big, beautiful” tax bill to put pressure on the federal debt burden at a time when there is uncertainty about the outlook for the economy and the appeal of US assets. In May, the rate the US government has to pay investors for a 30-year loan spiked to its highest level since 2023. That’s because investors either sold or refused to buy bonds and demanded higher compensation in exchange for what looked like a riskier loan to the US government. Dalio is the latest billionaire to sound the alarm over the US debt and deficit, with worries that the vast government debt will crowd out spending on essential services to leave a hollowed-out economy that can’t work for its citizens and which spooks global investors. There is a “very low imminent risk” of a US government debt crisis, but a “very high long-term risk,” Dalio writes in the book. “Even though this progression has happened many times in history, most policy makers and investors think their current circumstances and monetary system won’t change,” Dalio writes. “The change is unthinkable — and then it happens suddenly.” A higher deficit means the Treasury might need to sell more bonds to finance its spending and interest payments. A debt “death spiral” describes when a government needs to issue more bonds to raise money to pay its existing debts, but faces less demand and has to pay investors more and more interest for them to bite. “A spiral of rising interest rates leading to worsening credit risk, leading to less demand for the debt, leading to higher interest rates is a classic debt ‘death spiral’,” Dalio writes. The higher interest rates investors demand to loan the government money leave less money for running a country, increase interest rates for consumers and businesses and generally leave a country with fewer options to raise cash. “To me, that suggests that US policy makers should be more, not less, conservative in dealing with the government’s finances because the worst thing possible would be to have its finances in bad shape during difficult times,” Dalio writes. Turmoil in the bond market Trump’s tax bill is set to raise the deficit because it slashes tax revenues without enough cuts to spending to balance things out. The current US deficit is on unsustainable path and is “more than the market can bear,” Dalio said at an event on May 22 in New York ahead of the book’s release. He said that he anticipates it will be roughly three years before the United States is in a “critical situation.” “I think we should be afraid of the bond market,” Dalio said. “I can tell you that this is very, very serious.” Tax cuts can be a boon for Wall Street, and the stock market cheered Trump’s tax cuts during his first term. But what makes this time different is adding to the deficit while the federal debt burden has ballooned: The ratio of federal debt to gross domestic product, or the total value of goods and services produced in the economy, soared from 104% in 2017 to 123% in 2024, according to the Treasury Department. “We’re now talking about deficits and a national debt-to-GDP ratio that are really going to be unprecedented, except for recent recessionary times,” Alan Auerbach, a professor of economics at UC Berkeley, previously told CNN. Dalio’s book comes out days after JPMorgan Chase CEO Jamie Dimon said on Friday at the Reagan National Economic Forum that a “crack” in the bond market “is going to happen.” “The US long bond is already near its highest levels since the (2008 financial crisis),” said Ajay Rajadhyaksha, an analyst at Barclays, in a recent note. “As markets absorb the details of the new tax bill, and realize that deficits are likely to keep rising for the foreseeable future, the risk is that longer yields keep rising as well.” Nor have Democrats and Republicans shown they can work together on the problem, Dalio said at the May 22 event. “It’s like being on a boat that’s headed for rocks,” he said, “and they agree that they should turn, but they can’t agree on how to turn.”
Ray Dalio: ‘We should be afraid of the bond market’
TruthLens AI Suggested Headline:
"Ray Dalio Warns of Long-Term Risks in U.S. Debt and Bond Market Volatility"
CNN
6.6
TruthLens AI Summary
In his latest book, "How Countries Go Broke: The Big Cycle," billionaire investor Ray Dalio warns about the precarious state of the U.S. government's debt situation, which he believes is nearing a critical threshold. Dalio emphasizes that while there is currently a low risk of an immediate debt crisis, the long-term outlook is concerning, suggesting that the U.S. is approaching a 'death spiral' in its fiscal policies. He highlights that the government’s increasing deficit, exacerbated by tax cuts and insufficient spending cuts, poses a significant threat to economic stability. The bond market, usually a stable foundation for both the U.S. and global economies, has been experiencing heightened volatility, partly due to President Trump's tax agenda. This volatility has led to rising interest rates on long-term bonds, which could further strain the government's ability to manage its debts and finance essential services, ultimately impacting the economy's health and investors' confidence.
Dalio points out that the current trajectory of the U.S. debt is unsustainable, with the debt-to-GDP ratio soaring from 104% in 2017 to an anticipated 123% in 2024. He argues that a classic 'debt death spiral' could emerge if the government is forced to issue more bonds to pay off existing debts, leading to higher interest rates and diminished demand for U.S. debt. This scenario could result in less funding for crucial government operations and increased borrowing costs for consumers and businesses. Dalio urges policymakers to adopt a more conservative approach to fiscal management, warning that neglecting the growing debt could have dire consequences. He also notes the bipartisan inability to address the debt issue effectively, comparing the current situation to being on a boat headed toward danger without a clear plan for avoiding disaster. As discussions around fiscal policy continue, Dalio's insights serve as a stark reminder of the potential risks lurking in the bond market and the broader economic implications of the U.S. debt situation.
TruthLens AI Analysis
The article highlights the concerns raised by billionaire investor Ray Dalio regarding the US bond market and the long-term risks associated with the country's debt situation. Dalio’s insights, presented in his new book, suggest that while the US is not facing an immediate debt crisis, there are significant long-term threats that could destabilize the economy. This alarm has been echoed by other economists and investors, particularly in light of recent fiscal policies.
Perception Creation
The intention of this article appears to be to create awareness and concern about the state of the US economy, particularly regarding government debt. By emphasizing terms like "death spiral" and "no return," the narrative pushes readers to reflect on the potential gravity of the situation. The choice of language is evocative, aiming to instill a sense of urgency and caution among investors and the general public.
Hidden Agendas
There may be underlying issues not directly addressed in the article, such as the potential impacts of political decisions on economic stability. The focus on Dalio’s perspective could overshadow alternative viewpoints, potentially leading to a skewed understanding of the economic situation.
Manipulative Elements
The language used in the article could be deemed manipulative as it employs dramatic imagery and warnings about financial crises. This could lead to heightened anxiety among investors and the public, prompting them to react more cautiously in financial markets. The emphasis on Dalio’s status as a billionaire also lends credibility to his warnings, potentially influencing public perception disproportionately.
Truthfulness of the Information
The article appears to be based on factual information, primarily citing Ray Dalio's book and recent economic data. However, the interpretation of these facts, especially the framing of the bond market's volatility, could lead to varying conclusions about the actual state of the economy.
Societal Impact
The narrative suggests several outcomes, including increased caution among investors, potential shifts in fiscal policy, and a heightened focus on government spending. Such shifts could have cascading effects on the economy, potentially leading to adjustments in market behavior and public sentiment toward government financial strategies.
Supportive Communities
This article is likely to resonate with communities concerned about economic stability, fiscal responsibility, and investment strategies. Investors and financial analysts would likely find the discussion around government debt particularly relevant, as it directly impacts market dynamics.
Market Influence
The article could influence stock market behavior, particularly in sectors sensitive to interest rates and government spending. Investors may become more cautious about acquiring government bonds, which could lead to volatility in financial markets, affecting various securities tied to government fiscal health.
Global Power Dynamics
In a broader context, concerns about the US bond market and government debt have implications for global economic stability. Given the US’s role as a leading economy, shifts in its fiscal health can reverberate through international markets and impact global power dynamics.
Use of AI in the Article
While it is difficult to ascertain whether AI was used in crafting the article, its structured nature and emphasis on clarity could suggest the influence of automated writing tools. If AI was involved, it might have shaped the tone and focus on key points, steering the reader’s understanding in a particular direction.
In conclusion, the article raises valid concerns about the US bond market and government debt. However, the emphasis on fear and potential crisis may lead to a disproportionate response from the public and investors. Overall, while the information presented is largely factual, the framing and language used may manipulate perceptions regarding the urgency of the situation.