Ray Dalio Warns of Looming US Debt Crisis, Says America Faces 'Economic Heart Attack' Without Fiscal Cuts

Billionaire investor Ray Dalio recently expressed grave concerns over the escalating U.S. federal debt.

What Happened: Dalio shared his apprehensions at the World Government Summit in Dubai on Thursday. He drew a comparison between the burgeoning $36 trillion national debt and plaque clogging the arteries of the U.S. financial system.

Dalio foresees the possibility of an “economic heart attack” within the next three years if the issue is not promptly addressed.

Dalio predicts that if President Donald Trump‘s tax cuts persist, the U.S. will run a deficit of about 7.5% of GDP. He urged the White House and Congress to pledge to reduce the deficit to 3% of GDP within the next three years.

According to the report by Fortune, with the recent surge in inflation, bond investors may demand higher premiums to hold fixed-income securities such as sovereign debt. This could further strain the government spending allocated for servicing the national debt.

"When I calculate the supply and demand over the next year and three years. we have an immediate issue," said Dalio. 

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Dalio is apprehensive that the bond markets may soon be unable to absorb the increasing amount of Treasuries issued, leading to skyrocketing interest rates and a “debt death spiral”. He underscored the urgency of the situation, stating that the US government must act swiftly, even if it results in societal damage.

White House economic advisor Kevin Hassett unveiled plans to control inflation by increasing supply and reducing aggregate demand. However, Dalio contended that time is of the essence and drastic measures, including austerity, may be necessary.

Why It Matters: The escalating US fiscal deficit has been a cause for concern for some time now. Dalio’s warning serves as a grim reminder of the potential economic fallout if the issue is not addressed promptly.

The U.S. government’s plans to control inflation might not be enough to prevent a “debt death spiral”, as Dalio calls it. The situation calls for immediate and drastic measures, even if they result in societal damage.

The clock is ticking, and the U.S. government must act swiftly to avert an impending economic crisis.

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