Ray Dalio's Interview with Bloomberg Podcast
"Fiscal Deficit Must Be Reduced to 3% of GDP"
On the Possibility of a 'Mar-a-Lago Agreement': "An Ugly Competition"
Donald Trump's U.S. administration has been warned by a hedge fund titan that if the federal government's fiscal deficit is not reduced immediately, it could face a sudden debt crisis akin to a heart attack within three years. There are also predictions that the 'Mar-a-Lago Agreement' aimed at devaluing the dollar would fail even if pursued.
Ray Dalio, founder of Bridgewater Associates and known as the 'hedge fund titan,' stated in a podcast interview with Bloomberg News on the 3rd (local time) that the Trump administration will face problems "if it does not reduce the deficit right now."
He said the federal government debt crisis is "like a heart attack, so it is impossible to say exactly when it will happen," adding, "It is getting closer. My guess is three years, give or take about a year."
This warning came as the Trump administration attempts to achieve two goals simultaneously: pushing tax cuts and reducing the federal government's fiscal deficit. The administration plans to reduce the annual federal deficit, which amounts to $1.8 trillion, by cutting government spending while also pursuing tax reductions on corporate and income taxes.
Dalio referred to his recent book, How Countries Go Broke, stating that the federal government needs to reduce its fiscal deficit to 3% of Gross Domestic Product (GDP). U.S. Treasury Secretary Steven Mnuchin has also set a target to reduce the deficit-to-GDP ratio from 6.4% last year to 3% in the future. However, economists warn that it will be difficult to cut spending related to social security programs, and that the Trump administration's tax cut policies may actually expand the fiscal deficit. The U.S. fiscal deficit increased by $840 billion in the first four months of the 2025 fiscal year (October last year to January this year), marking a record high.
Dalio pointed out that although the federal government is increasing debt to cover the fiscal deficit, there are no longer entities willing to buy U.S. Treasury bonds. He said, "When you pile much more debt on top of a mountain of debt, the problem is not just the existing debt but also having to sell this debt additionally to individuals, institutions, central banks, sovereign wealth funds, etc. When you calculate who the buyers are and how much needs to be sold, there is a huge imbalance."
He also predicted that at some point, the U.S. might impose sanctions on major holders of U.S. Treasury bonds and pursue interest payment suspensions or debt restructuring.
Regarding the possibility of a Mar-a-Lago Agreement to devalue the dollar to reduce the U.S. trade deficit, Dalio said, "It is actually possible and is being conducted somewhat secretly, but I do not think the dollar will be devalued against all other currencies," adding, "All other currencies will fall along with the dollar." He further noted, "In other words, it depends on individual central banks," and added, "It will be an ugly competition." The U.S. signed the Plaza Accord in 1985, which artificially lowered the value of the U.S. dollar against major currencies, and there are market speculations that President Trump might pursue a second Plaza Accord at his Mar-a-Lago resort in Florida.
Dalio also predicted that the cryptocurrency Bitcoin could constitute part or a large portion of alternative currencies. He cited Bitcoin's resistance to seizure or taxation, unlike real estate, as a reason. Regarding gold price forecasts, he advised investors to take a cautious approach by limiting portfolio exposure to 10-15%.
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