Table of Contents
Key Takeaways
- Ray Dalio says soaring U.S. debt is eroding the dollar’s global dominance and driving investors toward gold and crypto.
- The Bridgewater founder believes bitcoin and gold4 are “hard money” alternatives in a late-stage debt cycle.
- While downplaying risks from stablecoins, Dalio warns that debt, politics, climate, and AI will trigger major global changes within five years.
U.S. Debt Threatens Dollar’s Role as Reserve Currency
Billionaire Ray Dalio, the founder of Bridgewater Associates, provided a warning of the highest level: the exploding U.S. national debt stands as a greater danger to the dollar’s role as the main reserve currency than deregulation or market instability.
In his comments to the Financial Times, Dalio maintained that U.S. dollar and other reserve currencies are victims of fiscal extravagances reflecting the lack of trust in them. He recalled the period of the crisis in the 1930s–40s and 1970s–80s, when the financial world was similar to the present one with investors moving rapidly to hard assets such as gold in order to guarantee their wealth.
“The debt load of the dollar and other reserve currencies is making them less attractive as safe havens for wealth,” Dalio noted. “That is one of the main factors leading to a rise in the demand for both gold and cryptocurrencies.”
Crypto and Gold Gain Momentum as Alternatives
Dalio, who has always been an advocate for non-fiat currency assets in the portfolio, repeated his opinion that bitcoin and gold are the best protection against monetary instabilities.
He also mentioned that the total issuance of bitcoin – 21 million – makes it to be as scarce as gold, and thus, catching the attention of investors who are cautious about standard quantitative easing.
“We can take crypto as an alternative currency that is already feasible,” Dalio said. “Its scarcity gives the investor a choice of what to turn to—a newly issued dollar or a decline in international dollar demand—if the United States supplies the dollar with more paper or if there is less demand for the dollar globally.”
Despite not foreseeing digital currencies fully replacing the dollar, Dalio nevertheless indicated that gold and bitcoin would be among those assets functioning as the hard part of a diversified and risk-adjusted portfolio. Back in July, he was urging investors to set aside as much as 15% for gold and/or bitcoin in a move to hedge against currency devaluation caused by debt accumulation.
Stablecoins and Treasury Market Exposure
Remarkably most of the analysts envision with fear stablecoin’s practice of having their backing by U.S. Treasury bonds. However, Ray Dalio has a different view of these risks. The real challenge, he claimed, is not stablecoins but the loss of purchasers’ power of Treasurys if the public debt and inflation were to continue.
According to Dalio, “if stablecoins are well-regulated, then it should not be possible that they get in trouble because of the systemic risk.” Although he agreed with the view that stablecoins’ connection with Treasurys results in their dependency on the U.S. government’s fiscal condition for the maintenance of their long-term stability.”
Dalio’s remarks were made just after the GENIUS Act, the first U.S. stablecoins’ all-encompassing regulatory framework, was passed in July. The law requires issuers to be fully backed by liquid assets, such as Treasury bills, stipulates annual audits for enterprises with more than $50 billion in market cap, and lays down clear rules for foreign issuance.
A Late-Stage Debt Cycle with Global Implications
Dalio described the issue in question as part of the larger concept of the “late-stage big debt cycle.” He cautioned that the choice the authorities have is not an easy one:
- Raise interest rates and thus allowing the risk of defaults and recession to materialize.
- Go on printing money that is likely to be the enemy of the long-term value of the currency.
He was of the opinion that both courses of action would result in the dollar’s weakening as a global currency and the increased possibility of systemic economic disruption.
Ray Dalio points to the introduction of these various factors – debt, politics, climate, AI, and geopolitics – that will change the face of the world’s layout in the coming five years. He compared the current time to the late 1920s and 1930s when there was a rise in populism, state intervention, and geopolitical rivalry.
“It’s devilishly hard to know what the era we are going to enter will be like but I can assure you that it will be huge and unimaginable changes,” Dalio warned. He went on saying that investors and governments not only have to anticipate these changes but also be ready to navigate through inherently different monetary and political systems.
Summary
Ray Dalio has once again sounded the alarm on U.S. fiscal policy, warning that ballooning government debt threatens the dollar’s global dominance as a reserve currency. He believes this crisis of confidence is already pushing investors toward bitcoin and gold as alternative stores of wealth. While he dismissed stablecoin risks for now, Dalio stressed that the late-stage debt cycle, combined with geopolitical and technological disruptions, will transform global markets in the coming decade.
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