Billionaire investor warns of looming disaster for the US economy: Debt is heading toward a “death spiral”
The United States debt has ballooned in recent years. At the turn of the century, it was 56% of GDP but crossed the threshold of 100% in 2012. At the end of the 2024 fiscal year, it was 123% according to the US Treasury Department.
This imbalance of revenue and payments is drawing the attention of financial experts like billionaire investor Ray Dalio who are sounding the alarm. In his new book, ‘How Countries Go Broke: The Big Cycle’, he warns that the situation in the US is approaching “the point of no return.”
Ray Dalio sounds alarm on US debt “death spiral”
Dalio says in his book that there is a “very low imminent risk” of a debt crisis in the US, but warns of a “very high long-term risk.” As the deficit gets higher, the Treasury has to sell more bonds to finance spending as well as interest payments. However, if demand for US bonds falls the Treasury would have to offer higher interest rates to attract buyers leading to a “death spiral” he explains.
“A spiral of rising interest rates leading to worsening credit risk, leading to less demand for the debt, leading to higher interest rates, is a classic debt ‘death spiral,’” Dalio writes in his book.
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According to the US Debt Clock the national debt is approaching $37 trillion. Trump’s “one big, beautiful bill” that Republicans are trying to pass in Congress would increase the deficit by $2.4 trillion according to the nonpartisan Congressional Budget Office.
“Imagine you’re running an enterprise. You’re spending $7 trillion a year. You’re taking in $5 trillion. You have a $2 trillion deficit. You have a debt that’s six times the amount of money you’re taking in,” Dalio gave as an example on CNBC. “The interest on the debt is $1 trillion. That’s 20 percent of all your spending—and 50 percent of your deficit. And you can’t cut the costs materially… You have a real problem.”
Economic activity could slow as debt increases
As the nation spends more money on paying the interest on the bonds it issues there is less available for government programs. Additionally, interest rates for consumers and businesses will increase stifling economic activity.
“Debt service rise… the interest rate and the debt payments increase and squeeze out spending, and you’re seeing that,” he shared on CNBC.
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