Ray Dalio Says ‘Absolutist’ Politics May Hamper Sustainable Tackling Of ‘Debt Bomb’ Threatening US

Billionaire and hedge fund manager Ray Dalio on Monday delved into measures that can sustainably tackle the ticking “debt bomb” even as lawmakers wrangle over President Donald Trump’s ‘one big, beautiful’ tax bill.

Fiscal concerns could become an overhang on the market, which is currently on a record run. The S&P 500 Index closed at a record for a second straight session on Monday. 

The Invesco QQQ Trust (QQQ) ETF and the SPDR S&P 500 ETF (SPY), exchange-traded funds (ETFs) that track the Nasdaq 100 and the S&P 500 indices, have advanced 8.2% and 6.1%, respectively, at the halfway mark of the year.

On Stocktwits, retail sentiment toward SPY ETF turned 'neutral' (52/100) by late Monday, from 'bullish' a day ago, while the mood toward the QQQ ETF was 'bearish.' The message volume remained 'normal' for both.

Dalio, the founder of investment firm Bridgewater Associates, shrugged off political promises not to raise taxes and cut benefits. Posting on social-media platform X, he said these promises are inconsistent with the much-needed "I promise to cut the budget deficit to about 3 percent of GDP,” which he believes is required to prevent a significant debt or dollar crisis.

The veteran investor also offered his take on how to tackle the twin crisis. He said, “There is no way that the deficit/debt bomb problem can be sustainably dealt with unless there is a mix of tax revenue increases and spending decreases that are determined in a bipartisan way.”

“Our representatives in Washington, DC, both Republicans and Democrats, know this is true.”

Dalio expects those on either side of the aisle to “chip in a bit,” which, according to the hedge fund manager, would lead to a “supply/demand balance improvement” for U.S. debt. This, in turn, will reduce interest rates, and as an extension, the budgetary deficit, which will help the markets and the economy, he added.

The fund manager, however, highlighted what he deemed as a “tragedy.” “But because politics have become so absolutist, they feel they can't go down this obviously best path because both their constituents and their parties will throw them out of office if they explore this more balanced approach,” he said.

The U.S. is left to tackle a massive debt pile, which has now shot past $37 trillion to a new record. The fiscal deficit stands at 6.7% of GDP, and the net government debt is set to breach 100% of GDP (a sharp increase from 35% two decades ago), according to a recent report by Dutch financial services giant ING.

New estimates by the Congressional Budget Office (CBO) show that the Trump tax bill, vetted by the Senate, is expected to bloat the fiscal deficit to $3.3 trillion.

The economic uncertainty engendered by Trump’s tariffs, the prospects of Fed funds rate cuts, and the rest of the nations going down the de-dollarization path have all contributed to the greenback’s weakness. The Dollar Index (DXY), which tracks the greenback’s performance relative to a basket of major currencies, has shed approximately 11% so far this year. 

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