Ray Dalio shares 3 trades to weather a US debt spiral
The Bridgewater Associates founder has been warning about unsustainable deficits, likening the situation to a looming " financial heart attack" in a recent discussion of his new book "How Countries Go Broke: The Big Cycle."
"It's like a plaque building up in the arteries," Dalio said of debt service during an event in New York on Thursday. "You can see interest rates and debt service payments starting to squeeze out other consumption."
This year, the US is on track to bring in revenues of around $5 trillion and spend $7 trillion, contributing $2 trillion to the national deficit, Dalio said. On top of that, interest payments to service the debt will come out to $1 trillion.
"We have to, in the next, year sell about $12 trillion. We have $1 trillion that we can pay in interest. We have $9 trillion in debt service in terms of principle, and then we have to sell another $2 trillion because we had a deficit," Dalio said.
In order to return to financial health, the US must lower its budget deficit from 6.5% to 3% of GDP through a combination of cutting spending, increasing tax revenue, and lowering interest rates, Dalio said.
That puts the US in a tough spot because all three parts of the solution are difficult and controversial — just look at DOGE, the ongoing debate over the Big Beautiful Bill, and Trump's feud with Jerome Powell — making it extremely hard to move to an actionable outcome.
And with the US at risk of a recession, the debt situation could become even more severe since government borrowing tends to increase in times of economic downturn, Dalio said.
Mounting debt creates a supply and demand problem where the government has to raise interest rates to make US debt attractive to investors or print more money.
"When faced with the choice, they print money," Dalio said of governments.
3 trades for a debt spiral
Luckily, there are some actions investors can take to protect their portfolio from the negative effects of mounting national debt and widening deficits.
The most important things one can do are to hedge portfolios against inflation and diversify holdings, Dalio believes.
"Look at the value of your portfolio in inflation-adjusted terms, not in nominal terms," Dalio told the audience.
Dalio's a big fan of Treasury Inflation-Protected Securities (TIPS), which are government bonds that return more when inflation is high. It's the best investment vehicle for a middle-class American who's risk-averse and looking for inflation protection, in his opinion.
"The safest investment that you can get right now is an inflation-indexed bond," Dalio said. "You'll get a bit over 2% of real return above inflation."
Gold is another one of Dalio's top picks. The yellow metal has been a time-tested store of value, and it's no different today. Gold provides diversification, inflation protection, and a hedge against geopolitical risks. It's typically negatively correlated to other investments, meaning that it can perform well in times of economic downturn.
"There's a saying that gold is the only asset that you can have that's not somebody else's liability," Dalio said. "It's a prudent thing to have somewhere between 10 or 15% of your portfolio in gold."
And finally, a little bit of bitcoin can also bolster your portfolio. Dalio has changed his mind on bitcoin over the years, initially calling it a speculative asset and eventually owning a small amount himself starting in 2021.
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