Bridgewater Associates Founder and CIO Mentor Ray Dalio speaks on CNBC’s Squawk Box at the WEF Annual Meeting in Davos, Switzerland on January 16, 2024.
Adam Garisi | CNBC
Billionaire investor Ray Dalio believes reducing the U.S. budget deficit could stabilize the bond market and lower interest rates.
The founder of Bridgewater, one of the world’s largest hedge funds, said the current expected deficit is 7.5% of US gross domestic product. Dalio said that if this ratio were to fall to 3%, the imbalance between supply and demand in the bond market would be significantly reduced.
“It’s almost a black and white situation,” Dalio told CNBC’s “Squawk Box” at the World Economic Forum in Davos, Switzerland. “All these bonds have to be sold…The supply is huge…This has happened many times before, so we need to stabilize it, And we can do it.”
The combination of rising fiscal costs, continued increases in spending, and declining tax revenues has led to a sharp increase in the budget deficit, pushing the national debt to more than $36 trillion. In 2024, the government spent more on interest payments than on anything other than social security, defense, and health care.
The widely supported investor said deficit reduction could be achieved through tax increases, spending cuts or a combination of both, as long as politicians work together to solve the problem.
“This is what I call the 3% solution,” Dalio said. “We have so much debt that the interest on the debt is more important than spending and taxes…Our problem is not the deficit. Our problem is politics, divided politics.”
