Hedge Fund Pioneer Ray Dalio: "The Trump Administration's Biggest Challenge Is Solving the National Debt"

Warned About U.S. Debt Size Last Year
Rising Interest Rates Lead to Higher Debt Repayments
U.S. Fiscal Deficit Should Be Reduced to 3% of GDP

Ray Dalio, the founder of Bridgewater Associates and known as the godfather of hedge funds, said that the biggest challenge for the second Trump administration will be resolving the national debt. Dalio had also warned last year that the United States is facing an enormous amount of debt. However, some experts expressed concerns that sharply cutting government spending or imposing new taxes could hinder economic growth and damage public finances.

On the 21st (local time), Dalio told the Financial Times (FT) in an interview that there are signs the U.S. Treasury market is beginning to struggle to absorb government-issued debt, adding, "Resolving the national debt will be the biggest issue for the second Trump administration." This statement came during a discussion about the UK's national debt problem.

This is not the first time Dalio has issued a warning about the scale of the U.S. national debt. In September last year, he said the U.S. still faces an enormous amount of debt and that regardless of who wins the presidential election, the pressure from debt is unlikely to ease. He also cited debt as one of the five major factors affecting the global economy.

In this situation, rising market interest rates increase borrowing burdens such as higher interest costs to be repaid. Although central banks in various countries have lowered interest rates in recent months, market interest rates in major countries like the U.S. and the UK have risen. The UK’s 10-year government bond yield surged to a 16-year high, rising from 3.75% in mid-September last year to 4.93% earlier this month. The U.S. 10-year government bond yield also rose by 1 percentage point during the same period, reaching 4.62%.

Dalio expressed concern, saying, "We have reached a point where we have to borrow money to pay off debt, and if interest rates rise causing debt repayments to increase, we will fall into a 'death spiral' where we have to borrow even more money to pay it off."

He added, "This phenomenon is like a person whose arteries are clogged with a lot of foreign substances, causing rapid progression of arteriosclerosis," and said, "While we cannot know exactly when a dangerous event will occur, we can say the risk is very high and increasing."

Dalio argued that the U.S. should reduce its fiscal deficit to 3% of gross domestic product (GDP). The U.S. fiscal deficit this year is estimated to exceed 6% of GDP. If President Trump formulates policies based on tariff cuts and deregulation, fiscal deficits and inflation will be inevitable. The Congressional Budget Office, a watchdog agency in Washington, estimated that Trump’s economic policies, including tax cuts and tariffs, will increase the fiscal deficit by $7.75 trillion through the 2023 fiscal year.

Some experts believe that sharply cutting fiscal spending or imposing new taxes could actually hinder national economic growth and damage public finances. Dalio also explained that while reducing the fiscal deficit would negatively impact growth and inflation, it would result in lower interest rates, and these lower interest rates could reduce the fiscal deficit while significantly affecting public finances.

Dalio also warned that as the UK’s national debt increases, it could enter a 'death spiral' where more debt must be taken on to repay existing debt.

Dalio said the recent rise in UK government bond yields and the weakening of the pound indicate that the UK is struggling to repay its national debt. He pointed out that the UK’s annual interest payments have already surpassed ?100 billion, and with higher interest rates and the need to refinance existing debt, financial risks may arise. He diagnosed, "It appears a 'death spiral of debt' is forming, where more debt must be taken on to repay existing debt, forcing cuts in other government spending or increased taxation."

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