Ray Dalio warns of perilous debts as the US national debt clocks over 36 trillion dollars, sending unprecedented interest rate payments, now at $2 million per minute, or $892 billion in the fiscal year 2024.
The US could go broke, warned Ray Dalio, founder of Bridgewater Associates.
Ray Dalio warns of perilous debts is no lone voice in the wilderness
A string of top investors, such as Michael Burry, compared the US to the Byzantine Empire in its sunset and expanded the supply of its currency for short-term prosperity.
Paul Tudor Jones also said late last year, “We are going Broke”, and that was then echoed by Ray Dalio in January.
The red flag is also being waved by The International Monetary Fund, which is forecasting US annual interest payments reaching $1.7 trillion by 2034, with cumulative interest costs over the next decade approaching $12.9 trillion.
The US currently accounts for 34.6% of global debt at $102 trillion.


“We are going Broke”
PAUL TUDOR JONES
Ray Dalio warns of perilous debts, shedding light on a looming crisis in his new book entitled, “How Countries Go Broke,” soon to be released
“Big debt crises are inevitable,” Dalio wrote, explaining that lending is rarely perfectly aligned with the income needed to service it.
“Even though this progression has happened many times in history, most policymakers and investors think their current circumstances and monetary system won’t change.”
Ray Dalio asks a few compelling questions;
“Can a big, important country with a reserve currency like the US go broke—and, if so, what would that look like?
Is there such a thing as a Big Debt Cycle that we can track that will tell us when to worry about debt and what to do about it?
“I don’t come to this subject as an economist. I come as a global macro investor who for over 50 years has been through many debt cycles in many countries and has had to navigate and understand them well enough to bet on how they would go,” he said.

“Can a big, important country with a reserve currency like the US go broke—and, if so, what would that look like?”
RAY DALIO
Ray Dalio then stated what most seasoned investors know, that the debt market drives just about everything.
“I have been obsessed with studying debt dynamics for decades,” he wrote.
“The big, long-term debt cycle was described in the Old Testament, how it repeatedly played out in Chinese dynasties over thousands of years, and how time and again it has foreshadowed the fall of empires, countries, and provinces, wrote Ray Dalio.
He noted that the big long-term debt cycle typically lasts about one lifetime, roughly 80 years (give or take 25 years), so most investors do not learn about them through experience.
“A debt crisis occurs when there have been more promises made than there is money to deliver on them” – Ray Dalio
Ray Dalio warns of perilous debts, believing that central governments and central banks will go broke
That is nothing new, having occurred hundreds of times previously, with significant political and geopolitical consequences.
Ray Dalio sees an interrelationship between Big Debt Cycles and other cycles, domestic tension with widening the wealth gap, rising world power challenging the hegemony, acts of nature, climate change, pandemics and disruptive technologies, AI and robotics.
He notes that central governments and central banks have a bias toward creating a lot of credit, which is debt.
Ray Dalio explains that short-term debt cycles, easing to tightening of central bank monetary policy, which lasts about six years, give or take three years.
Each short-term debt cycle leads to the expansion of credit and debts.
So, the Big Debt Cycle is the sum of all short-term debt cycles ending in unsustainable debt levels and a default.
He noted that late in the Big Debt Cycle when there are a lot of debt assets and liabilities relative to income, the balancing act of trying to keep interest rates high enough to satisfy lender-creditors without having them too high for borrower-debtors becomes more challenging.
“A debt crisis occurs when there have been more promises made than there is money to deliver on them. When that happens, the central bank has to choose between a) printing a lot of money and devaluing it or b) not printing a lot of money and having a big debt default crisis. In the end, they always print and devalue. Either way—via default or devaluation—the creation of too much debt eventually causes debt assets (e.g., bonds) to be worth less,” he wrote.
“The Big Debt Crisis recedes when a new equilibrium is achieved and a new cycle begins” – Ray Dalio
Ray Dalio warns of perilous debts brushed over by credit rating agencies
He explains that credit rating agencies do not rate the riskiness of the debt losing value. They only rate the risk of default on the debt.
“Creditors would be better informed if the rating agencies rated the riskiness of the debt losing value through default and devaluation,” he wrote.
“The biggest, most common risk to money becoming an ineffective storehold of wealth is the risk that a lot of it is created,” he added.
What to look out for as Ray Dalio warns of perilous debts
The final stage of the debt cycle popping of the bubble characterised by a combination of a tightening of money and the debt growth being unsustainable.
“Net selling of debt assets, especially net selling of government debt assets, is a big red flag,” he wrote.
However, selling off the government debt triggers a market-driven tightening of money and credit, which leads to a lacklustre economy and downward pressure on the currency.
“Tightening leads to rising yields, creating a death spiral,” he wrote.
He notes that the central bank eventually simultaneously eases credit and allows the currency to devalue.
“The Big Debt Crisis recedes when a new equilibrium is achieved and a new cycle begins,” he wrote
Ray Dalio believes the federal government and the central bank will take credibility-restoring actions.
He thinks central banks will make money hard again by offering high real yields, raising reserves, and/or linking the currency to something hard, like gold or a strong currency.
Ray Dalio warns of perilous debts and the end of the Big Debt Cycle for leading world powers, often to the end of their prominence
“Debt crises provide great risks and opportunities if investors understand how they work and have good principles for navigating them well,” he wrote.