Billionaire Ray Dalio Says US Budget Deficit Isn't The Problem, It's 'Fragmented' Politics
Bridgewater Associates founder Ray Dalio believes the key to lowering interest rates and balancing out the bond market is reducing the U.S. budget deficit.
What To Know: In an interview from the World Economic Forum on CNBC’s “Squawk Box” Tuesday morning, Dalio indicated that there’s a supply-demand imbalance in the bond market that can be improved if the projected deficit could be lowered to 3%.
“We have a projected deficit of 7.5% of GDP. That means all those bonds have to be sold,” Dalio said.
“When I calculate who are the buyers of the bonds, there will not be enough buyers. And then where it could be worse in this dynamic is those who own bonds also sell the bonds, and when that happens there’s a tremendous supply … and then we have problems. We can get into what it looks like, but it’s happened many times before. So we have to stabilize that, and we can do it.”
The billionaire investor told CNBC that he calls it “the 3% solution.” Most people understand that you can lower the deficit by cutting spending and raising taxes, but they often overlook what happens when the economy is strong.
“If you do it when the economy is good, you will get a lower interest rate. A lower interest rate means less cost of the debt because we have so much debt that the interest costs on the debt is more important than spending and taxes,” Dalio said.
The federal budget jumped close to 40% in 2024 versus the prior year, pushing the national debt above $36 trillion. Dalio told CNBC that it’s up to the politicians to work together to figure it out. It’s certainly achievable if everyone agrees on the 3% target, he added.
“Our problem isn't the deficit. Our problem is the politics,” Dalio said. “The fragmented politics.”
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