The founder of Bridgewater, Ray Dalio, has warned that the US faces serious problems if the Donald Trump administration does not reduce the country’s debt. “If we do not cut the deficit, we will have the equivalent of a heart attack, a crisis in the bond market,” says the mythical investor.
“It is as if it were your doctor and tell you you are in a very, very serious state of health. All these are important problems“Dalio told the CNBC.” I want to alert people, I want to help, and, in a way, I feel like a doctor. If we do not cut the deficit, we will have the equivalent of a heart attack, a crisis in the bond market. “
The US deficit is currently 7.5% of GDP. Dalio believes that you have to lower it to 3%. This adjustment is possible if certain strategic measures are applied, but warned that the real challenge is of a political nature.
The Gross National Debt of the US amounted to approximately 36.2 billion dollars, of which 28.8 billion were public debt. The latter consists of values acquired by individuals, companies, state and local governments, banks of the Federal Reserve, foreign governments and other entities outside the US government.
A high level of debt implies that the Government allocates more resources to the payment of interest, which makes it more vulnerable to future economic crises. In addition, it contributes to the increase in inflation and generates a significant financial burden for future generations.
Healthy discipline
Dalio compared the situation with the need for discipline in personal health: “The same type of discipline is required as if I told you:” You have to change your diet, you have to modify your exercise routine and do certain things. “
“I think the Trump administration recognizes the problem, but the actions that are being taken must focus on how to reduce costs and how to increase productivity,” he says.
And add that: “It is essential to ensure that you really know what is being done and act with pragmatism. It must be addressed with a conservative mentality, because you have to evaluate how much you can really cut, what will be the consequences of these cuts and analyze each decision with precision. It is better to be meticulous and conservative in this aspect. “
Dalio also warned about debt risks in the private credit sector, noting that “a spiral of debt death” occurs when a debtor needs to ask for more money borrowed to pay the interests of his debt, which accelerates the problem. “When everyone realizes this, nobody wants to maintain that debt. There is where we are going,” he says.
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