Ray Dalio Warns of US Debt Crisis, "Economic Heart Attack Coming Within 3 Years"

'Hedge Fund Industry Godfather' Dalio

Selling Treasury Bonds Won't Solve the Problem

Trump Must Tackle Budget Deficit

Ray Dalio (pictured), founder of the world's largest hedge fund Bridgewater Associates, has warned that a serious debt crisis could occur within three years if the Donald Trump administration doesn't immediately move to reduce the budget deficit.

On the 3rd (local time), Dalio said in an interview with Bloomberg's podcast Odd Lots, "I don't know exactly when the crisis will hit, but it will come (suddenly) like a heart attack," adding, "It's getting closer, and in my estimation, it's likely to happen within three years."

He pointed out, "If you don't take measures to reduce the budget deficit, the responsibility lies with you (the Trump administration)," and "When an economic shock like a heart attack hits, voters will never be satisfied."

In his recent book, "The Changing World Order," Dalio argued that the US government should reduce its budget deficit to around 3% of gross domestic product (GDP). It currently stands at a record high of 6.4% of GDP. US Treasury Secretary Scott Bessent has also stated a goal of lowering it to 3%.

Dalio noted that while the US government needs to issue new Treasury bonds to repay existing debt, there's a high possibility that there won't be enough investors to purchase them. He also expressed concern that "as debt accumulates, it's not simply a problem that can be solved by selling existing Treasury bonds," adding that "various sanctions and excessive bond supply could cause serious supply-demand imbalances."

In fact, at the end of 2022, the three major buyers of US Treasury bonds—foreign central banks, US banks, and the Federal Reserve (Fed)—simultaneously withdrew from the market for the first time in history. Dalio predicted that "there's a possibility that the US government might impose sanctions on countries and institutions that hold large amounts of US Treasury bonds, not pay them interest, or even attempt to restructure national debt."

Regarding the possibility of the US pursuing a 'Mar-a-Lago Agreement' to lower the dollar's value to reduce the trade deficit, Dalio said it "could become reality." Wall Street observers suggest that if the Trump administration's 'tariff war' fails, there's a possibility of pursuing a Mar-a-Lago Agreement similar to the 1985 'Plaza Accord.'

Dalio explained, "Considering the possibility of dollar devaluation, Bitcoin and gold could emerge as safe-haven assets," adding that "unlike real estate, Bitcoin cannot be easily seized or taxed." He advised that "given future uncertainties, building a balanced portfolio is most important."

Reporter Im Da-yeon allopen@hankyung.com