Billionaire and founder of Bridgewater Associates, Ray Dalio, raised concerns about five aspects affecting the global economy, including U.S.-China relations and U.S. national debt.
At the Asia Summit of the Milken Institute in Singapore, Dalio stated that these five aspects are interconnected and often exhibit some form of cyclicality. However, after assessing these five aspects as a whole, Dalio believes that the negative impacts we may see in the future could outweigh the positive ones.
Dalio expressed worries about the scale and operation of the U.S. national debt.
“If the Federal Reserve adjusts interest rates, what impact will it have on the overall dynamics? How will all the debt be handled?” he questioned.
The Federal Reserve has maintained the federal funds rate at its highest level in 23 years for over a year, leading to federal government debt-servicing expenses reaching $10.49 trillion, a 30% increase from a year ago. This year’s total government spending budget is $11.58 trillion.
“What is the value of it (national debt)? Is it personal debt or personal asset? How does it become a storage place for wealth? These are important and urgent questions,” he raised to attendees.
Dalio made these comments on Wednesday prior to the Federal Reserve’s interest rate decision.
The Congressional Budget Office (CBO) has warned that the U.S. federal government’s debt as a percentage of GDP will increase from 97% last year to 116% by 2034, surpassing even the levels during World War II. If current market expectations for interest rates are factored in, the U.S. debt as a percentage of GDP will rise to 123% by 2034.
Research by Bloomberg Economics, a branch of Bloomberg, based on CBO’s baseline assumptions, conducted a million mathematical simulations. 88% of the simulation results indicate that the U.S. debt as a percentage of GDP will continue to rise over the next 10 years, reaching an unsustainable trajectory.
In the worst 5% scenario, the U.S. debt as a percentage of GDP will reach 139% by the end of 2034, exceeding Italy’s level from last year.
“The second concern is the issue of internal order and chaos,” Dalio commented on U.S. politics before the election.
“There are irreconcilable differences between the two parties, caused by significant wealth and value disparities… Even they call into question the orderly transition of power,” he added.
Economist and former dean of Columbia Business School, Glenn Hubbard, also mentioned in an interview with self-media “Before the Bell” that interest payments on the U.S. national debt were practically zero a few years ago, and now they have become as significant as defense spending.
He stated that the next president will have to address this challenging issue.
“He may not bring up this topic during the campaign, but whoever he is, he will have to deal with this issue,” Hubbard said.
Dalio listed geopolitics as his third point of concern: U.S.-China relations.
The U.S.-China relationship has been under continuous strain due to a series of ongoing tensions, such as territorial issues in the South China Sea, Taiwan’s political status, and economic tariffs.
“I believe there may be fear of war, which inhibits us from achieving the goal of mutual assured destruction. But this is chaos,” he later emphasized, without specifying the exact trigger.
Dalio then pointed out that “natural disasters” pose a greater threat to humanity and society historically than war.
“Natural disasters, droughts, floods, and pandemics cause more deaths and lead to more changes in domestic and international order,” Dalio highlighted.
The billionaire expressed that if people can appropriately adopt and invest in technology, it will bring significant potential productivity benefits.
He introduced that technology can create unicorn companies and improve the lives of a small percentage of people.
“Whoever wins the technology war will win the military war,” he added.