Internal political problems are making the U.S. debt worse – Ray Dalio (US10Y)
The U.S. is at a point where its federal debt is weaking the economy, and internal political conflict is making the problem worse, said Ray Dalio, Bridgewater founder and co-chief investment officer.
Interest rates will stay at their current level, “perhaps slightly less,” he said during a CNBC interview.
He said that the U.S. economy will likely weaken, and its growth rate will approach 0–1%.
“When you keep having debt growth faster than income growth, then you have debt service encroaching on your spending,” he said. “As that happens, there is a need to get more and more into debt.”
We are at that point of acceleration, he said, which creates a supply-demand issue, made worse by other issues, such as internal political conflict that affects foreign demand for bonds.
And about 40% of the U.S. debt is sold to foreigners.
Since 2020 lows of below 1%, the U.S. 10-year bond yield (US10Y) has jumped up to 5% in October, before sliding back to 4.45% as of the previous close.
And as the U.S. continues to issue more bonds, equivalent of the size of its federal deficit, the government will have to continue selling bonds, he said, and the buyers of those bonds would need to have equal amount of appetite.
“So, as we look forward, we have a debt problem, because you can’t keep adding to debt, faster than you add to income,” he said. “The worst that gets, the more we are going to have that long-term problem, and you can see it in the numbers, we are near that inflection point.”