Dalio warns US could face debt crisis within three years

Ray Dalio, founder of Bridgewater Associates, warned in a LinkedIn post on Aug. 21 that the United States could face a debt crisis within three years and allowed a margin of error of about two years.

He estimated federal revenue this year at roughly $5.5 trillion and spending at about $7.5 trillion, creating an annual shortfall near $2 trillion. He also estimated net interest payments on the federal debt at about $1 trillion a year.

He wrote that rising interest costs on existing debt increase financing pressure and that those trends could weaken confidence in the dollar and the Treasury market.

Dalio recommended investors consider raising allocations to assets such as gold and bitcoin as a hedge against potential monetary instability and falling demand for Treasuries.

Treasury Department officials have increased purchases of longer-dated government bonds through the department’s buyback program to support market functioning and the distribution of maturities.

Market analysts say factors that will shape outcomes include economic growth, inflation, Federal Reserve policy, investor demand for sovereign debt and political decisions on taxes and spending.

The United States funds deficits by issuing Treasuries; higher yields would raise interest costs and could add pressure to public finances.

Dalio built Bridgewater into one of the world’s largest hedge funds and has studied debt cycles, central bank policy and financial crises for decades.