Ray Dalio says the US is on track for a debt crisis within three years, pointing to debt that just crossed $40 trillion and interest costs now almost a fifth of the federal budget. He also warns that the AI boom's reliance on debt financing could widen the wealth gap and feed a market bubble.
Ray Dalio said in a Bloomberg Television interview on Tuesday that he expects a debt crisis "within the next three years," or by the fall of 2029. The Bridgewater Associates founder said the scale of the national debt and the speed at which it is growing mean the country is "approaching our limits."
Debt tops $40 trillion, interest bites deeper
US debt breached the $40 trillion mark in August, an inflation-adjusted increase of more than $10 trillion, or over 33%, since 2019. As a result, interest payments on that debt now exceed $1 trillion a year, almost one-fifth of the federal budget, leaving less for Social Security, healthcare, defense, and education.
Dalio said that trajectory is unsustainable because debt service costs keep climbing. According to Business Insider: "When debts accumulate faster than they're paid back, then debt service costs grow", he said, adding that the costs then "squeeze out spending."
AI's debt-financed boom raises the stakes
Dalio also pointed to geopolitical tensions that have cooled other countries' demand for US debt. He said the AI boom has become "heavily debt-financed," which threatens to tighten credit in riskier categories such as auto loans.
He added that AI hyperscalers are beginning to "encounter issues" accessing credit, and that he is "starting to see those limits being hit." Dalio suggested AI companies are overinvesting to stay competitive in an uncertain future market, potentially inflating a tech bubble.
A widening wealth gap
Dalio warned that debt-financed strain could feed tensions over the wealth gap, since people with less get squeezed the most in that part of the cycle. He said bubbles tend to burst when people need cash, for example to repay loans or pay a wealth tax.
Dalio has sounded the alarm on a debt crisis for years, describing rising debt as an "aggressive cancer" that "accumulates like plaque" on the financial system and threatens a "heart attack" for the US economy. He has also said the debt threat, combined with political division and foreign wars, forms a "perfect storm" — and that he feels like he's on a boat headed to rocks.
Source: Business Insider
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