Bridgewater Founder Ray Dalio Warns of the Danger of US Debt in the Treasury Market - Latest Global News

Bridgewater Founder Ray Dalio Warns of the Danger of US Debt in the Treasury Market

Ray Dalio, the billionaire founder of hedge fund giant Bridgewater Associates, has warned that rising U.S. government debt could impact Treasury bonds and argued that investors should shift some of their money to foreign markets.

In an interview with the Financial Times, Dalio described his wide-ranging concerns about the US, including its debt burden, the risk of what he called a “civil war” and the possibility that the country could become embroiled in another international conflict. He warned that this could deter foreign investors from buying US bonds.

“I’m . . . “I’m concerned about government bonds because of the high level of debt, which is compounded by high interest rates,” he said.

“I am also concerned about weakening demand to meet supply, particularly from international buyers concerned about the U.S. debt situation and possible sanctions,” Dalio said. If the US were to impose sanctions on more countries – after it did so against Russia following its invasion of Ukraine – that could reduce international demand for government bonds, he added.

Dalio’s warnings come amid growing concern among some commentators about the mountain of U.S. debt. The Congressional Budget Office forecasts that U.S. debt-to-GDP will rise above its World War II peak of 106 percent by the end of the decade and continue to rise, while the regulator’s director warned of a Liz Truss-style market shock has when the federal government’s deficit is ignored.

Federal Reserve Chairman Jay Powell said in an interview with the news show that “the U.S. is on an unsustainable fiscal path when it comes to its debt.” 60 minutes earlier this year.

Meanwhile, borrowing costs have risen this year, with 10-year Treasury yields rising to 4.35 percent from 3.88 percent as investors sharply scaled back their expectations of rate cuts.

However, some investors believe such concerns are overblown. They argue that the flood of new government bonds on offer this year has been largely well-received by retail investors, with larger auction sizes having had little impact on returns so far.

Because of U.S. debt and the potential impact of another conflict, Dalio said investors should look to transfer some of their money abroad.

Although “the best parts of the United States are still the best parts of the world for capitalism and innovation,” the risks facing the country are increasing, making geographic diversification necessary, he said.

“Countries that earn more than they spend and have good balance sheets, internal order and are neutral in geopolitical conflicts. . . look attractive,” Dalio added.

He identified countries such as India, Singapore, Indonesia, Malaysia, Vietnam and some Gulf states as potentially attractive investment destinations. He added that gold is also a good diversifier.

Dalio, 74, stepped down in 2021 as chairman of Connecticut-based Bridgewater, the world’s largest hedge fund, which manages $112.5 billion in assets. He remains an advisor to the three co-chief investment officers and a member of the board, while his research, supported by a team at Bridgewater, is shared with investors.

According to Dalio, the risks identified in his research include the growing likelihood of a “civil war” in the USA – he estimates the probability of this at around 35 to 40 percent.

“We are now on the brink,” he said. But we “don’t know yet whether we will be moving into much more turbulent times.”

The civil war Dalio envisions was not necessarily one in which people “grab up guns and start shooting,” although such a scenario is possible, he said.

Instead, he sees it as an acceleration of the political polarization in American politics that has taken place over the past few decades. This civil war would be a war in which “people move to other states that are more consistent with their desires, and they do not comply with the decisions of federal authorities with opposing political persuasions.”

He also believes that this year’s US presidential election is the most important in his lifetime and will determine whether the risks he sees – which include climate change and the effects of the increasing use of artificial intelligence – spiral out of control.

This election would be a test of: “Can democracy work well?” Will there be an acceptance of the rules and the ability to work well under those rules?” he said.

“[Republican candidate Donald] Trump will pursue more right-wing, nationalist, isolationist, protectionist and non-regulatory policies – and more aggressive policies to combat internal and external enemies, including political enemies. [President Joe] “Biden, and even more so the Democratic Party without Biden, will be more of the opposite, although they too will be politically tough,” he added.

Dalio declined to endorse any candidate, but revealed that he had recently attended a Taylor Swift concert.

“I have seen how it has brought people of all kinds – and many nationalities – together. It felt like it was impossible to fight,” he explained. “I say this partly in jest, but if she were running for president and listened to great advisers, I would consider supporting her.”

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