Ray Dalio says that the American debt crisis is only in years, partly because of President Trump
Everyone, from Jamie Dimon to Jerome Powell, believes that a national debt crisis is looming, they just don’t know when it will strike. Ray Dalio is not afraid to put a calendar on it: he says that a “heart attack induced by debt” will occur under the current administration, in two or three years at most.
Dalio is no stranger to his alarm on this subject. Earlier this year, he said that economists who believed that America could continue to strengthen his debt burden without consequences “does not understand the mechanics” of the issue.
And this week, he put an imminent deadline on the problem, adding that this is partly due to the policies of the second Trump administration.
“The great excesses which are now projected following the new budget will probably lead to a heart attack induced by debt in the relatively close future,” said Dalio Financial time. “I would say three years, give or take a year or two.”
Despite Trump praising his second mandate as a cost reduction and efficiency year (already, the months of the Ministry of Elon Musk efficient disappear from the point of view), the oval office has raised the eyebrows with its large and magnificent bill, that Trump presented the greatest reduction in history for history for working Americans and the middle class.
But it is not conducive to rebalance the books. If an entity – public, private or individual – plans to reduce its debt, it has two options: borrowing less or bringing more. The reduction in tax revenues deliberately brings less, and the loan from the Trump administration has not shown signs of significant slowdown.
The CBO, for example, said that the bill would add 3.4 dollars to national debt – although most of this cost will be offset by the income generated by the prices. This is the point of view generally shared by economists, that Trump’s White House will not accelerate national debt either, but that it does not delay it either.
Not solving the problem will only make it more painful in the future. Currently, the American debt pile amounts to 37.3 billions of dollars and, in July, the cost of the US government to maintain this debt amounted to more than 1 dollars – 17% of the federal budget for the whole year.
Indeed, the calculations of Fortune The tariff revenues shown (around $ 30 billion per month) will not cover a fraction of outgoing monthly payments to serve the debt, not to mention the higher figure. According to the Treasury data seen by Fortune, The interest accumulated on cash tickets in July were only $ 38.1 billion. Add to these $ 13.9 billion in interest on treasury bonds, $ 2.85 billion on floating treasury rate tickets (FRN) and a total of $ 6.1 billion on assets of securities protected by treasury inflation (TIPS). The bill is enticing: the total amounts to $ 60.95 billion for the month.
And while Dalio clearly indicated that the attractive heap was not a fault that can be placed on an administration or the other, its concern concerning the current government is that no one will resist the powers in place for the good of the economy.
“I think what is now politically and socially happening is similar to what happened in the world in the period 1930-1940,” added the founder of Bridgewater Associates. By referring to decisions like the government buying important participation in the Intel fleas manufacturer, Dalio added: “I simply describe the relationships of cause and effect that stimulate what is happening.
“And by the way, for such periods, most people are silent because they are afraid of reprisals if they criticize.”
When buyers retreat
In this spirit, Dalio compared the American economy to the circulatory system of a body riddled with plaque, with payments of interest ultimately by tightening other forms of expenditure necessary.
At one point, he said, buyers of the American debt will begin to wonder if the government can operate under these conditions: “The debt request will follow little to follow the offer.”
It is then that a calculation to the Liz Truss is likely to materialize, said Wharton professor Joao Gomes Fortune. In 2022, the British Prime Minister supported a mini-budget featuring an unmanned budgetary stimulus raft, frightening the city since the book has invaded its lowest value of all time against the dollar.
Gomes explained: “If, at some point, these people who have so far been happy to buy the public debt of the big economies decide:” You know what, I am no longer sure that it is a good investment. I will ask for a higher interest rate to be convinced to hold this “, so we could have a real accident in our hands.”
