Ray Dalio, the founder of Bridgewater Associates, warns US investors that America’s financial condition is in serious trouble.
The billionaire described the US economic system as a circulation of credit, which is given to people who then convert the money into profit.
Dalio says that if credit isn’t used effectively, it will simply build up and slow down the economy as well as hurt the bond market.
Dalio answers, “yes” when asked if America “is going broke,” and suggests the US debt creates a demand and supply imbalance in bonds. This causes bondholders to be diluted as the debt issuers continue.
Think of it as a great system that gives credit and if people use the credit properly, then they make profits and pay back the debt. If debts are rising in relation to income, then that is a serious problem. What happens, mechanically, is that, as debts and debt servicing increase, debt service increases, interest rates and payments rise and this squeezes out the spending.
Second, there is the buying and selling. The debts of one person are the assets of another. They’re actually holding the bonds. These bonds are held by so many different people around the globe.
Then they take the bonds, and now need to purchase a large number of bonds as we are selling them. There is also a problem of supply and demands if we calculate the number of buyers. If they are forced to sell the bonds they may even have more to sell than they are producing in new debt. The second is supply and demands. And the third factor is that when a supply and demanded problem occurs, interest rates will go up or the central banks may print money.
If we look at those numbers, then it is easy to see where the US stands and how the issue has developed.
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The post Ray Dalio says America is going broke, warns US facing an emerging problem of rising debt and interest costs may be updated as new information becomes available.
