Ray Dalio Warns of US Debt Crisis Within Three Years

It's always a pleasure to be here.

I think it's just important to understand the mechanics. That's why I wrote the book, "How Countries Go Broke," because there's a mechanical process and people don't understand it. And it's really quite simple. The way it works for countries is the same it works for individuals, except countries can print money. Okay. But one man's debts are another man's liability. So what happens is when debts accumulate faster than they're paid back, then debt service costs grow. And so that becomes a higher and higher percentage of one's cash flow. And when that happens, it starts to squeeze out spending, and so then you have a problem. So in the United States, so we have that dynamic as it squeezes it out. Then also one man's assets are another man's liabilities for debt. And so you have to think about what are they holding, and is it holding wealth, and is it effective? So those are the two drivers. And so what we're seeing now, for example, on the US debt is that we spend about 7 trillion a year. Think about this like a business or an individual. They spend 7. Okay? They take in 5. Okay? Spending 40% more than they're taking in, and they've been doing that for a number of years. So as a result, debt and debt service payments are building, and as a result, they are squeezing out the spending. So we have that kind of a dynamic going on. Then we also have, one man's debts are another man's assets. And so when you see interest rates rise naturally because of this supply-demand imbalance, it produces losses in those assets. And so think about bonds as an asset to hold and how bad bonds have been as interest rates rise, and that has an effect. So we have that normal picture from when you were trading.

There's always a long and short depending on the nature of the cycle. Right? When things get worse. But what we have now is a situation where there's the rate at which it's compounding, the size of it. Well, you know, why does the market go down? The market goes down because there's too much debt, and we're adding to it at that rate. So... And then we're approaching our limits. Okay? And then there are geopolitical changes. You know? The United States could run large deficits. But now because of conflicts, we also have a dynamic in which those who want to hold US debt, they're holding too much already. So we have that dynamic going on. And you could see it. If you were to just calculate, which is in the book I wrote, you know, "How Countries Go Broke: The Big Cycle," it shows how that debt service payment then is squeezing out spending, and so you can see that dynamic work.