"Credit Risk Underestimated...
Printing Money to Repay Debt"
Ray Dalio, founder of Bridgewater Associates, the world's largest hedge fund and often referred to as the "godfather of hedge funds," said on May 19 (local time) that Moody's downgrade of the U.S. sovereign credit rating is "just the tip of the iceberg."
Dalio wrote on the social media platform X (formerly Twitter) that "it is important to note that credit ratings only assess the risk of a government not repaying its debt, so they underestimate credit risk." He made these remarks in this context.
He pointed out, "The risks associated with U.S. government debt are much more severe than what credit rating agencies suggest." He continued, "This is because countries in debt can print money to repay what they owe, which creates the risk that bondholders may suffer losses due to currency depreciation. In other words, for those who care about the value of money, the risks of U.S. Treasury bonds are much greater than what credit rating agencies indicate."
On May 16, international credit rating agency Moody's downgraded the U.S. sovereign credit rating by one notch from the highest rating of 'Aaa' to 'Aa1', citing the continuously increasing U.S. federal government debt. Moody's explained that the downgrade was due to the rapid rise in government debt and the growing burden of interest payments, which would limit the flexibility of the government budget. Since the announcement of tariff policies by the Donald Trump administration, investors have expressed doubts about the status of U.S. Treasury bonds as a safe asset.
Dalio's remarks that day highlight that the increasing U.S. government debt burden could lead not only to a higher risk of default, but also to rising inflation and a decline in the value of the dollar, potentially resulting in investment losses. Dalio has repeatedly identified the U.S. debt problem as a risk factor and has emphasized the need for a policy shift to significantly reduce the fiscal deficit to around 3% of GDP.
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