Investing legend Ray Dalio is warning that the United States is at a point where its enormous debt could become out of control.
In a new CNBC interview, the billionaire says that the country is not generating enough revenue to meet financial obligations.
“The longer term is that we are at a point in which we are borrowing money to pay debt service. And there is a process by which when you keep having debt growth faster than income growth, then that means you have debt service encroaching on your spending. It’s the same for the government as it is for us.
And as that happens and you want to keep spending at the same level, there is the need to get more and more into debt. And the way that works, it accelerates. We are at the point of that acceleration, which creates the supply-demand problem.”
Dalio explains that the US needs to sell more bonds to foreign nations in order to accumulate more debt. However, he warns that political infighting and other social issues may discourage other countries from buying US treasuries, creating a supply-demand problem.
“And it’s made worse by the other issues that we’re talking about: the internal political issue, the internal social conflict issue is something that is affecting foreign demand for bonds. About 40% of our debt is sold to foreigners. There is a concern of the American politics, of the controlling of this debt crisis and these types of things.
So we come back to the same basic question: how strong are we going to be? When we talk about strong, what I mean is also economically strong and economically strong means financially strong. That means it’s just a basic thing.
Financially strong means: do you earn more than you spend? Do you have a good income statement? As a country, do we have a good income statement? And do we have a good balance sheet, more assets than we have liabilities?
The worse that gets the more we are going to have that long-term problem. You can see it in the numbers, it’s just a matter of numbers. We are near that inflection point.”
At time of writing, the national debt stands at $33.746 trillion.
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