Billionaire investor Ray Dalio says that the US will likely turn on the money printers again as it takes on more debt.
Speaking at the All-In Summit, Dalio says that the United States will eventually struggle to pay off its financial obligations as it piles on more debt.
With the country’s rising debt levels, the billionaire says that a recession could force the government to re-introduce quantitative easing, which is a monetary policy that aims to increase the supply of dollars in the financial system.
“What happens is debt rise is relative to incomes. What that means, mechanistically, is that debt service payments rise relative to incomes, and so it squeezes out consumption as the debt compounds. And what happens is there’s a realization that they have to print money.
I think you’re going to see in the next downturn another move to print money.”
According to the U.S. Treasury Department, the country’s national debt stands at $33.044 trillion.
Dalio also says that there’s a “big risk” looming for the United States. The billionaire notes that US bondholders may see it fit to liquidate their holdings if the value of their bonds decreases due to money printing.
When the US government prints more dollars, the value of the currency declines as more supply is pumped into the system. Dollar debasement tends to lead to a decline in the value of US bonds as investors realize that they can buy less with the interest generated by the government-backed asset.
Says Dalio,
“The big risk comes when they don’t want to hold those bonds anymore because of the supply-demand…. because [when a country] has a deficit, it has to borrow, and so it sells its bonds.
Who are the buyers of the bonds? Why do they buy? The buyers of bonds buy because there’s an attractive return. Not only do you have those amounts of bonds, but when they start to realize that [they’re] not getting good returns on those bonds, they can sell those bonds.”
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