Ray Dalio founded the largest and most successful hedge fund in the world, Bridgewater Associates.
Today Bridgewater manages $160 billion and has produced returns of $49.7 billion for its investors since its inception in 1975. Thanks to his firm’s impressive performance, Dalio is now one of the 100 wealthiest people in the world.
Dalio recently answered a series of questions on Facebook, and one of his answers in particular caught my eye. The question posed to Dalio was about the growing size of U.S. debt and liabilities and the impact of rising interest rates (emphasis mine):
Question: “… It was OK to service [debt] under 0% rates, but now when rates are going up, what policy, in your view, should be a better response? Cutting deficit? Reducing spending? How do we transition from beautiful deleveraging to normalization without pushing on a string?”
Dalio’s answer: “Because the dollar size of our obligations (to service debts and meet non-debt obligations for pensions and healthcare) is large and will grow at a rate that is faster than the incomes to meet them, I expect borrowing and printing money will both grow, which will weaken the dollar and eventually diminish its role as a reserve currency. Said differently, the soundness of our finances is weak.”
Notice that he didn’t really answer the question. The user asked what we should do about this huge problem. And Dalio answered with what the government is going to do– print more money and take on more debt, which will lead to the eventual fall of the dollar as the world’s reserve currency.
This is the elephant in the room that nobody wants to talk about. You can’t keep borrowing, spending and promising beyond your means forever. Eventually, it catches up.
As a nation, the U.S. has been on a borrowing binge since World War II. Let’s look at the total U.S. debt picture from 1945 to 2015.
