Ray Dalio says US debt crisis will trigger an economic collapse

Hedge fund manager Ray Dalio has warned that the United States is on the brink of a financial disaster, and unless drastic steps are taken to slash the deficit, the economy will spiral into collapse.

Speaking at the World Government Summit in Dubai yesterday, Dalio said, “It’s like if I was a doctor and I was speaking with you about your condition, I would say to you, this is now very, very serious. The US government needs to cut its budget deficit from 7.5% of GDP down to 3%, or face the consequences.”

Dalio warns of a debt-fueled catastrophe

As of February 13, the US gross national debt stands at $36.22 trillion. Out of this, $28.8 trillion is debt held by the public—owned by individuals, corporations, state and local governments, the Federal Reserve, foreign nations, and other non-government entities.

Dalio said he’s concerned because high debt means higher interest payments. It also makes the economy more fragile, more vulnerable to crises, and fuels inflation. “I want to alert people. I want to alert government officials,” he said. “I want to help, you know, and so I feel like the doctor, and then I would say everybody, politically… if this doesn’t happen, and we have the equivalent of, you know, an economic heart attack, or a heart attack of the bond market, then you know who’s responsible, because it can happen.”

If policymakers don’t get serious about spending cuts via Elon Musk’s Department of Government Efficiency (D.O.G.E), the US could face a scenario where it has to borrow just to pay interest on its existing debt. That’s what Dalio calls a “debt death spiral.”

“Debt death spiral” is already happening

Dalio added that this crisis is unfolding in real time. “A debt death spiral is that part of the cycle when the debtor needs to borrow money in order to pay debt service, and it accelerates, and then everybody sees that, and they don’t want to hold the debt. That’s where we’re approaching.”

Asked what the Trump administration should do, Dalio said, “I think they recognize the problem. But recognizing a problem isn’t enough. How do you cut costs? How do you raise productivity? … Make sure that you really know what you’re doing and you’re practical, and do it on… the conservative side, because you know, how much can the cutting actually be? We’ll see.”

Dalio said D.O.G.E needs to commit to reducing the budget deficit to 3% of GDP or step aside. “So it requires the same kind of discipline as if I was to say to you, OK, you need to change how you eat, you need to change your exercise routine, and you need to do these things.”

House Republicans push for a debt limit increase

Meanwhile, Congress is scrambling to figure out a solution. House Republicans just released a budget resolution that proposes raising the debt ceiling by $4 trillion. Their plan also seeks to extend the 2017 tax cuts, increase border security and defense spending, and offset the cost with cuts to other government programs.

Speaker Mike Johnson has been rallying GOP lawmakers behind the proposal, saying on social media, “With nearly every House Republican directly engaged in this deliberative process, this resolution reflects our collective commitment to enacting the President’s full agenda—not just a part of it.”

But passing the resolution won’t be easy. “There will be ongoing debates and discussions in the coming weeks, and we remain focused on working through the process to deliver on our promises made to the American people,” Johnson added.

Not everyone is on board though. House Democrats say Republicans’ proposal will gut social programs—especially Medicaid, which covers 80 million low-income Americans. House Democratic Assistant Leader Joe Neguse slammed the plan, calling it a direct attack on working-class families.

“The GOP budget resolution and the outline for a reconciliation package are a betrayal of the middle class that would cut Medicaid, end it as we know it, and ultimately reward billionaires and corporations,” Neguse said at a press conference on Feb. 11. “We know that this rip-off plan that they’re pursuing within the Budget Committee will increase costs, not decrease costs. You don’t decrease costs by gutting Medicaid.”

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