• Ray Dalio says that the US is in the late stages of a debt crisis and predicts a shortage of buyers for newly issued bonds.
• Reasons for this include institutional investors getting burned by rapid interest rate hikes, geopolitical worries about sanctions, and internal conflicts leading to large wealth gaps.
• Dalio believes that this situation could lead to economic slowdown and that the debt cycle is approximately halfway through.
Ray Dalio’s Warning
Billionaire investor Ray Dalio says that the US is already in the latter stages of a debt crisis and predicts that the government will find it difficult to seek sufficient buyers for newly issued bonds. In a new Bloomberg interview, Dalio explains why there could be a shortage of US treasury buyers.
Interest Rate Hikes
Institutional investors who bought treasuries a few years ago got burned by the Fed’s rapid interest rate hikes. When interest rates rise, the value of older bonds that offer lower yields declines as the government issues new bonds that pay higher interest.
Geopolitical Worries
Some countries are afraid to accumulate the country’s debt after seeing how the US and its allies froze about $300 billion worth of Russian assets since the onset of the war in Ukraine. This fear has caused some countries to worry about accumulating too much US debt due to potential sanctions from other nations.
Internal Conflicts
Another factor contributing to Ray Dalio’s warning is internal conflicts within America, such as large wealth gaps between certain groups which can further weaken economic stability over time if not addressed properly.
Conclusion
Ray Dalio believes that these three aligning factors will lead to an economic slowdown and states that on this short-term debt cycle – he calls it the seven-year cycle – we’re about halfway through; meaning interest rates are now at a level they’re probably going stay at but won’t rise much from here due to tightness in supply-demand gap for treasuries.
