A US debt crisis is on the horizon as the American economy faces a precarious fiscal situation, warned Ray Dalio, the founder of Bridgewater Associates, the world’s largest hedge fund. This warning comes as the country’s national debt reached a staggering $33 trillion this month, raising concerns among US lawmakers who are currently involved in negotiations for a spending bill before the October 1 deadline.
During an interview with CNBC that aired on Thursday, Dalio stated, “We’re going to have a debt crisis in this country. How fast it transpires, I think, is going to be a function of that supply-demand issue, so I’m watching that very closely.” The United States Treasury Department reports that the country’s debt levels have dramatically increased in recent years, particularly after a nearly 50% surge in federal spending between fiscal years 2019 and 2021. Investors are expressing worries that the situation might lead to a further rise in interest rates.
Dalio also cautioned that the economy may face additional challenges beyond high debt levels, highlighting the risk of zero growth. “I think you’re going to get a meaningful slowing of the economy,” warned the billionaire.
Earlier this year, the US narrowly avoided a historic default after President Joe Biden signed a bill suspending the nation’s $31.4 trillion debt limit only two days before the June deadline. This move effectively lifted the debt ceiling until January 1, 2025. However, the near-miss on the massive debt could harm the US’s fiscal reputation, according to analysts.
In August, rating agency Fitch downgraded the USA’s credit rating, citing anticipated fiscal deterioration over the next three years and the repeated debt-ceiling talks. Moody’s, another rating agency, recently warned that a possible government shutdown on October 1 would further strain the country’s credit rating.
The potential consequences of the US debt crisis extend beyond the domestic economy, with ramifications for global financial stability. It becomes critical for the country to address its fiscal challenges and find sustainable solutions before the situation worsens.
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