Ray Dalio, founder of the world’s largest hedge fund, Bridgewater Associates, warns of economic instability due to high global debt levels and urges fiscal responsibility.
What Happened: In an interview with Tucker Carlson at the Word Governments Summit 2025, Ray Dalio outlined his systematic approach to understanding global economic cycles. He identified five major forces driving the global economy and shaping financial markets.
The billionaire investor emphasized the immediate force of the debt cycle, comparing debt to the circulatory system of financial markets. He warned that when debt grows faster than income, it leads to economic instability.
Currently, global debt levels are at an “unprecedented” level, with the U.S. government spending about $1 trillion annually on interest payments alone. He warned that over $9 trillion of debt will have to be repaid within the next year, leading to a supply-demand imbalance in the bond market and rising interest rates.
Elaborating further, Dalio stated that the holders of the debt and the buyers of the debt will not buy enough to meet supply resulting in the rise in interest rates and the asset prices. He added that then the central banks will be compelled to print more money leading to a monetary inflationary situation.
He explained that the U.S. will run into a deficit of about 7.5% of the GDP and urged the policymakers and President Donald Trump to cut it to 3%. Dalio cautioned that failure to address the debt issue within the next three years could lead to severe financial instability.
On being asked if the wasteful expenditure cuts undertaken by the DOGE, handled by Tesla CEO Elon Musk will help to achieve the 3% deficit threshold, Ray Dalio stated, “I don’t see it”. He further explained that the DOGE should also focus on the impact of the expenditure cuts and efficiency enhancement initiatives on interest rates if the deficit problem has to be addressed. He emphasized that the three-year time horizon is achievable if the focus is on increasing tax income, doing ‘tolerable’ expenditure cuts, and focusing on interest rates.
Why It Matters: Dalio’s warning comes at a time when the U.S. federal debt has surged to $36.4 trillion against a GDP of $29.1 trillion, resulting in a debt-to-GDP ratio of 125%. Since the pandemic began in 2020, federal debt has increased by 80% while GDP grew by only 38%. This alarming increase has led Dalio to call for urgent measures to address the mounting U.S. federal debt crisis. Even on previous occasions, Ray Dalio has called for the 3% deficit target and warned that the U.S. faces a ‘debt death spiral’.
According to the projection by the Congressional Budget Office (CBO), the deficit to GDP will drop to 5.2% by 2027 as revenues rise faster than expenditures. In the following years, expenditures grow at a faster pace than revenues, on average. By 2035, the adjusted deficit will reach 6.1% of GDP—well above the 50-year average of 3.8%.
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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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