new York
Cnn
–
The United States is at low risk of an imminent debt crisis – but a high long -term risk, the billionaire investor Ray Dalio writes in a new book.
The situation of the American government’s debt “approaching the point of no return” and approaching a “death spiral” which could threaten the stability of the greatest economy in the world, he wrote in the book, “How Country Go Broke: The Big Cycle”, published on Tuesday.
Some economists and investors sound the alarm about the deficit for years. But this year, Wall Street began to take into account prudence while the agenda of prices and tax invoices by President Donald Trump has delighted volatility in the link walkwhich is the generally calm foundation of American and global economies.
Investors are increasingly concerned about the potential of Trump’s “big and beautiful” tax bill to put pressure on the burden of federal debt at a time when there is uncertainty about the perspectives of the economy and the appeal of American assets.
In May, the American government’s rate must pay investors for a 30 -year loan caused to its highest level since 2023. It is because investors have sold or refused to buy bonds and asked for higher compensation in exchange for what looked like a more risky loan to the United States government.
Dalio is the last billionaire to ring the alarm in relation to the debt and the American deficit, with concerns that the vast public debt will fulfill the essential expenses to leave a hollow economy which cannot work for its citizens and which frightens global investors.
There is a “very low imminent risk” of an American government’s debt crisis, but a “very high long -term risk”, writes Dalio in the book.
“Even if this progression has occurred several times in history, most decision -makers and investors think that their current situation and their monetary system do not change,” writes Dalio. “The change is unthinkable – and then it suddenly happens.”
A higher deficit means that the Treasury may need to sell more obligations to finance its expenses and interest. A “spiral death” debt described when a government has to issue more obligations to collect funds to pay its existing debts, but faces less request and has to pay more and more interest to investors.
“A spiral of the increase in interest rates leading to the worsening of credit risk, which leads to a debt request lower than the debt, which leads to higher interest rates is a” death spiral “, writes Dalio.
Higher interest rates require investors to lend government money to leave less money to lead a country, increase interest rates for consumers and businesses and generally leave a country with fewer options to increase funds.
“For me, this suggests that American political decision -makers should be more, no less, conservative to deal with government finances, because the worst thing possible would be to have its finances in bad shape during difficult times,” writes Dalio.
Trump tax invoice should increase the deficit because it reduces tax revenue without enough discounts to spend to balance things.
The current American deficit is on an unsustainable path and is “more than the market can support,” said Dalio during a Paley Media Council event on May 22 in New York before the release of its book. He said he plans that it will take about three years before the United States was in a “critical situation”.
“I think we should be afraid of the bond market,” said Dalio. “I can tell you that it’s very, very serious.”
Tax reductions can be a boon for Wall Street, and the stock market has applauded Trump’s tax cuts during its first mandate. But what makes this time this time is adding to the deficit while the burden of the federal debt has increased: the ratio of federal debt to the gross domestic product, or the total value of goods and services produced in the economy, going from 104% in 2017 to 123% in 2024, according to the Treasury department.
“We are now talking about deficits and a national debt ratio that will be really unprecedented, with the exception of recent recession times”, previously previously “Alan Auerbach, professor of economics at UC Berkeley said to cnn.
Dalio’s book will be released after the CEO of JPMorgan Chase, Jamie Dimon, said on Friday National Economic Forum Reagan That a “crack” on the bond market “will occur”.
“The leap long is already close to its highest levels since the (2008 financial crisis),” said Ajay Rajadhyaksha, analyst at Barclays, in a recent note. “While the markets absorb the details of the new tax bill and realize that deficits are likely to continue to increase in the foreseeable future, the risk is that longer yields also continue to increase.”
Democrats and Republicans have also not shown that they can work together on the problem, Dalio said at the May 22 event.
“It’s like being on a boat that goes towards rocks,” he said, “and they agree that they should turn, but they cannot agree on how to turn.”
