Ray Dalio’s Warning for America

We’ve talked about Ray Dalio before. Marcus Today adopts some of his principles. We don’t do what he does; we’ve adopted our own.

He’s got this methodology that you need to write down what you’re doing – particularly in funds management, which we do. These are all principles we operate by. And it’s good when you work in a team because you can debate these principles. So, I’m a bit of a fan of Ray Dalio – or his methods anyway.

He wrote a book recently – we did talk about it – called How Countries Go Broke. He talks about an 80-year “big debt cycle.” There are all these short-term debt cycles, but there’s a big one that runs for 80 years. And in the US, 80 years is up.

They’ve got $37 trillion worth of debt, and there are concerns about whether they can perpetually print money and issue bonds in order to service that, or whether at some point it’s all going to cascade. His suggestion is clear from the book: the US is risking going broke by continuing to be addicted to debt and allowing it to grow.

Trump’s big tax bill hasn’t helped. Anyway, Ray Dalio was in the Financial Times in an interview. Great article – if you can, seek it out. Let me tell you some of the things he said.

He said America risks a debt-induced heart attack within three years due to overspending and Trump’s budget. US debt service already costs $1 trillion a year.

So the US is paying $1 trillion a year in interest, with $9 trillion to roll over. That means they’ve got bonds expiring, they’ve got to replace them, and they need people to buy $9 trillion worth of bonds – and roll over $2 trillion of bond issues as well. In other words, they need a really healthy bond market.

It’s clear from the way the gold price is going that people are doubting the ability to continually fund the US with debt. Debt supply, he says, is outstripping demand, risking the final stage of the big debt cycle.

Have a read of the article if you can find it. A synopsis is in the newsletter in the Market Strategy section today.

But this is a real risk. We could see a major problem, and it would affect every market – equities, bonds, everything. Your house price, your interest rate. If it happened, it would touch them all.

Have a look for the Ray Dalio Financial Times interview.