Bridgewater Associates founder Ray Dalio warns that a debt crisis similar to Japan's is approaching the United States unless Washington alters its fiscal course. According to Dalio, the US debt situation could reach a critical juncture roughly three years from now, give or take two years.
Dalio points to Japan as a historical precedent, noting that between March 2013 and March 2023, the Bank of Japan increased its ownership of Japanese government bonds from 11.6% to 53.3% as private buyers pulled back. By his calculations, Japanese government bonds lost 51% against dollar debt and 76% against gold after 2013, while Japan's four largest life insurers currently hold approximately $96 billion in paper losses on government debt.
Examining the US financial position, Dalio compares the federal government to a business. Washington is projected to collect roughly $5.5 trillion this year, while facing about $1 trillion in interest payments and needing to refinance another $10 trillion in maturing debt. Combined payments totaling $11 trillion would amount to double the government's revenue.
Independent figures from the nonpartisan Congressional Budget Office (CBO) project a deficit of $1.9 trillion for the year, representing 5.8% of gross domestic product (GDP). The CBO also estimates net interest at $1.039 trillion, with debt held by the public standing at 101% of GDP and projected to reach 120% by 2036.
To address the issue, Dalio suggests reducing the deficit to 3% of GDP, referencing a historical American precedent where a 1991 deficit of 4.6% turned into a surplus by 1998 through a combination of spending limits, tax increases, and falling rates.
Against this economic backdrop, the 30-year Treasury yield closed at 5.23%, and total federal debt crossed $40 trillion. In response, Treasury Secretary Scott Bessent increased long-dated debt buybacks to at least $4 billion per operation for a period spanning September 9 to November 4.
As capital moves away from bonds, hard assets have seen gains. Gold traded at $4,604 an ounce, marking a nearly 5% weekly gain, while Bitcoin traded near $77,502 with a 6.4% single-day increase and a market value of $1.55 trillion.
Dalio advises investors to underweight bonds, maintain a 10% to 15% portfolio allocation in gold, and hold a small position in Bitcoin as non-government-produced alternatives.
