Ray Dalio discusses the $38 trillion national debt: ‘Future generations, including my grandchildren and those yet to be born, will be responsible for repaying this debt’

Ray Dalio Warns of U.S. Debt Crisis and Dollar Weakening

Ray Dalio, the billionaire who founded Bridgewater Associates—the world’s largest hedge fund—recently sounded the alarm about America’s mounting national debt and the declining value of the dollar. Speaking on the David Rubenstein Show, Dalio cautioned that the country’s unsustainable fiscal path will leave future generations saddled with debt that will be repaid in less valuable dollars. He remarked, “My grandchildren and great grandchildren, even those not yet born, will be responsible for paying off this debt in depreciated currency.”

Lessons from Economic History

Drawing on his extensive research into financial history, Dalio explained that when nations amass overwhelming debt—such as the U.S. now facing a staggering $38 trillion—they rarely resolve the problem through spending cuts or outright default. Instead, governments typically resort to a mix of currency devaluation and increased money printing.

“This is the standard response when countries are essentially insolvent,” Dalio explained. “They print more money, weaken their currency, and artificially lower interest rates, which means bondholders receive returns that don’t keep up with inflation.” This approach, he noted, penalizes those who invest in government bonds.

Historical Parallels and the Role of Gold

Dalio compared today’s situation to the early 1970s, especially the pivotal moment in 1971 when President Richard Nixon ended the dollar’s convertibility to gold. “Gold used to be the foundation of money,” he said, emphasizing how people once measured value in terms of gold. He continues to recommend allocating 10% to 15% of one’s portfolio to gold, noting its enduring appeal and recent surge in value. According to Dalio, since 1750, “80% of the world’s money has vanished,” with the remainder losing much of its worth.

He further explained, “Gold is unique because it isn’t someone else’s liability.” Holding physical gold means you aren’t dependent on another party to validate your wealth. Dalio pointed out that central banks are increasingly wary of sanctions, as seen with Russia after the Ukraine conflict, and are turning to gold as a safeguard.

Shifting Global Dynamics

Dalio believes the current economic climate is approaching a turning point reminiscent of the 1970s, driven by a worldwide move toward “war self-sufficiency.” As nations become less reliant on imports and foreign borrowing, he suggests this may partly explain U.S. actions in places like Venezuela and Greenland. Ultimately, Dalio foresees a future marked by currency devaluation and its wide-ranging consequences.

Political Gridlock in Washington

When questioned about the bond market’s lack of response to soaring debt, Dalio described a deadlock in Washington. Policymakers assume the bond market will remain stable, while traders expect Congress to act before disaster strikes. However, Dalio warned that debt crises often unfold gradually, then suddenly—echoing Ernest Hemingway’s famous words about bankruptcy.

Tariffs, Taxes, and the Real Solution

Dalio expressed doubt that current legislative measures, such as tariffs or sweeping bills, will address the root issue. While he acknowledged that tariffs have historically provided government revenue and can help foster domestic industry, he maintained that the debt problem will ultimately be handled through currency devaluation.

“Tariffs themselves aren’t inherently negative,” he said, recalling their role as the main source of U.S. government income in the past. “But every form of taxation comes with its own costs.”

Investment Strategies for Stagflation

Dalio advised investors to shift their focus from nominal wealth to inflation-adjusted value. He highlighted two key assets for protection:

• Inflation-Protected Bonds: Dalio considers Treasury Inflation-Protected Securities (TIPS) “the safest investment available right now,” as they guarantee returns above inflation.
• Gold: He reiterated the importance of holding 10% to 15% of a portfolio in gold, describing it as “the only asset that isn’t someone else’s liability.” Central banks are currently increasing their gold reserves to hedge against sanctions and geopolitical uncertainty.

Beyond specific assets, Dalio emphasized his long-standing principle of diversification. He recommends seeking “15 solid, uncorrelated sources of return,” a strategy he claims can reduce portfolio risk by about 80% without sacrificing expected gains. He also cautioned everyday investors against short-term speculation, calling it a “zero-sum game” where most people are likely to lose.

Looking Ahead with Cautious Optimism

Despite his concerns about the monetary outlook, Dalio ended on a hopeful note, expressing confidence in the nation’s ability to endure. He acknowledged the seriousness of the current financial cycle but concluded, “We will get through this and reach the other side,” stressing that the outcome depends on how society comes together during challenging times.