"Will Burst Within 3 Years, Gather Gold and Bitcoin"…World's Largest Hedge Fund Founder Warns

Ray Dalio Warns of U.S. Debt Crisis
"Reduce Bonds and Hold 10-15% of Portfolio in Gold"

Ray Dalio, founder of Bridgewater Associates, the world’s largest hedge fund, has advised investors to reduce their exposure to bonds and hold gold, warning that a debt crisis could erupt in the United States in about three years if the current fiscal policy stance does not change.

Ray Dalio, founder of Bridgewater Associates, who appeared on TED in 2017. Ray Dalio website

On August 21 local time, Dalio posted an article on LinkedIn titled "How Countries Go Bankrupt: The Dynamics Behind What Is Now Happening," cautioning that the United States is heading toward a severe debt crisis.

He drew attention to the recent sale of some US Treasuries by the Japanese government—to support the yen and its own capital markets—and noted that long-term US Treasury yields have hit new highs amid dollar weakness. He also pointed out that US Treasury Secretary Scott Bessent’s announcement of an expansion in long-term Treasury buybacks is consistent with typical developments during a debt crisis.

Dalio compared the credit and market system to human blood circulation. He said, "When credit is used effectively, it creates productivity and income with which borrowers can repay debts and interest. However, if sufficient income is not generated, debt servicing burdens pile up in the arteries, much like plaque, crowding out other spending."

When debt repayment burdens grow, holders of government bonds may hesitate to reinvest upon maturity or may sell off their holdings, which can reduce overall demand for government bonds. Dalio explained, "If there is insufficient demand for products like bonds compared to their supply, interest rates rise, leading to contraction in the markets and the economy—or, alternatively, the central bank prints money to purchase the debt."

He continued, "When the central bank prints money to buy up debt, the value of the currency declines and inflation rises. Neither option is favorable." Dalio cautioned that if this situation worsens, both the government and the central bank could take on more debt to repay existing obligations, with the central bank increasing money issuance to support this process—triggering a vicious cycle in which debt, currency supply, and inflation reinforce one another.

Dalio likened this trend to an "economic heart attack" that ultimately leads to a government debt crisis. He explained, "When spending financed by debt is blocked, causing the normal circulation of the economy to halt, a situation occurs that resembles an economic heart attack."

Regarding the US fiscal situation, he said, "This year, the US federal government's total revenue will be about $5.5 trillion, but total expenditures will reach about $7.5 trillion—resulting in a fiscal deficit of about $2 trillion." In other words, US government spending is about 40% greater than its revenue.

He estimated that this year the US government will incur interest expenses of about $1 trillion on its Treasury debt. Adding roughly $10 trillion in principal maturing this year, total debt repayments amount to $11 trillion.

Dalio stated, "To avoid default, the principal and interest that must be repaid total about $11 trillion, which is approximately 200% of government revenue." The vast majority of maturing principal must be rolled over either by existing bondholders lending again or by attracting new creditors.

Reflecting passage of the recent budget reconciliation act, Dalio projected that over the next 10 years the US government will have to borrow an additional $25 trillion to $30 trillion. Consequently, federal government debt could reach $55 trillion to $60 trillion in a decade.

"I am convinced that the government’s fiscal situation is at a turning point," Dalio warned, "and if the current issues are not resolved, the accumulation of debt will reach an unsustainable level unless there is a major shock."

For investors, he recommended reducing the proportion of debt-based assets like bonds and increasing holdings in gold and Bitcoin. Dalio said, "It is wise to reduce the share of debt-based assets such as bonds and to increase allocations to gold and, to a lesser extent, Bitcoin. Holding 10-15% of one’s portfolio in gold can reduce risk and also improve returns."

This content was produced with the assistance of AI translation services.