Ray Dalio Warns of US 'Economic Heart Attack' Unless Debt Cut

Hedge fund manager Ray Dalio issued a stark warning about the US economy's mounting debt, comparing the situation to a serious medical condition that requires immediate attention. Speaking at the World Governments Summit in Dubai, Dalio told CNBC's Dan Murphy that the US needs to drastically reduce its budget deficit.

"It's like if I was a doctor and I was speaking with you about your condition, I would say to you, this is now very, very serious. All of these are major problems," Dalio said. "What you need to do is cut your deficit from about seven and a half percent of GDP to 3% of gross domestic product, and you can do that. There are certain things that you can do that cut it in a certain way that'll make it much healthier, so the real problem is a political problem."

The US gross national debt currently stands at approximately $36.22 trillion, with $28.8 trillion of that in public debt held by individuals, corporations, and various entities outside the government. Dalio warned that the high debt levels leave the government vulnerable to economic crises, while also fueling inflation and burdening future generations.

"I want to alert people. I want to alert government officials," Dalio said. "I want to help, you know, and so I feel like the doctor, and then I would say everybody, politically... if this doesn't happen, and we have the equivalent of, you know, an economic heart attack, or a heart attack of the bond market, then you know who's responsible, because it can happen."

Dalio emphasized the need for political leadership to prioritize debt reduction, suggesting that officials should pledge to reduce the budget deficit or resign. When asked about his message to the Trump administration, Dalio stated: "I think they recognize the problem, and then in the actions that are being taken, how do you cut costs? How do you raise productivity?...Make sure that you really know what you're doing and you're practical, and do it on...the conservative side, because you know, how much can the cutting actually be? We'll see, and what are the consequences of the cutting and each one of those. So you better take a sharp pencil and be conservative."

Dalio also warned of a potential "debt death spiral" in private credit markets, where borrowers increasingly need to take on new debt to service existing obligations. He argued that the US is approaching such a point, where investors may become unwilling to hold debt.

Dalio's Bridgewater Associates, one of the world's largest hedge funds, had $171.7 billion in assets under management as of September 2023, according to the US Securities and Exchange Commission.