Finance
Ray Dalio says the Fed faces a tough balancing act
Ray Dalio, Bridgewater Associates co-chairman and co-chief investment officer, speaks during the Skybridge Capital SALT New York 2021 conference.
Brendan McDermid | Reuters
As the U.S. Federal Reserve implemented its first interest rate cut since the early Covid pandemic, billionaire investor Ray Dalio flagged that the U.S. economy still faces an “enormous amount of debt.”
The central bank’s decision reduces the federal funds rate to a range of 4.75% to 5%. The rate not only determines short-term borrowing costs for banks, but also impacts various consumer products like mortgages, auto loans and credit cards.
“The challenge of the Federal Reserve is to keep interest rates high enough that they’re good for the creditor, while keeping them not so high that they’re problematic for the debtor,” the founder of Bridgewater Associates told CNBC’s “Squawk Box Asia” on Thursday, noting the difficulty of this “balancing act.”
The U.S. Treasury Department recently reported that the government has spent more than $1 trillion this year on interest payments for its $35.3 trillion national debt. This increase in debt service costs also coincided with a significant rise in the U.S. budget deficit in August, which is approaching $2 trillion for the year.
On Wednesday, Dalio listed debt, money and the economic cycle as one of the top five forces influencing the global economy. Expanding on his point Thursday, he said he was generally interested in “the enormous amount of debt that is being created by governments and monetized by central banks. Those magnitudes have never existed in my lifetime.”
Governments around the world took on record debt burdens during the pandemic to finance stimulus packages and other economic measures to prevent a collapse.
When asked about his outlook and whether he sees a looming credit event, Dalio responded he did not.
“I see a big depreciation in the value of that debt through a combination of artificial low real rates, so you won’t be compensated,” he said.
While the economy “is in relative equilibrium,” Dalio noted there’s an “enormous” amount of debt that needs to be rolled over and also sold, new debt created by the government.”
Dalio’s concern is that neither former President Donald Trump or Vice President Kamala Harris will prioritize debt sustainability, meaning these pressures are unlikely to alleviate regardless of who wins the upcoming presidential election.
“I think as time goes on, the path will be increasingly toward monetizing that debt, following a path very similar to Japan,” Dalio posited, pointing to how the Asian nation has kept interest rates artificially low, which had depreciated the Japanese yen and lowered the value of Japanese bonds.
“The value of a Japanese bond has gone down by 90% so that there’s a tremendous tax through artificially giving you a lower yield each year,” he said.
For years, Japan’s central bank stuck to its negative rates regime as it embarked on one of the most aggressive monetary easing exercises in the world. The country’s central bank only recently lifted interest rates in March this year.
Additionally, when markets do not have enough buyers to take on the supply of debt, there could be a situation where interest rates have to go up or the Fed may have to step in and buy, which Dalio reckons they would.
“I would view [the] intervention of the Fed as a very significant bad event,” the billionaire said. Debt oversupply also raises questions of how it gets paid.
“If we were in hard money terms, then you would have a credit event. But in fiat monetary terms, you have the purchases of that debt by the central banks, monetizing the debt,” he said.
In that scenario, Dalio expects that the markets would also see all currencies go down as they’re all relative.
“So I think you’d see an environment very similar to the 1970’s environment, or the 1930 to ’45 type of period,” he said.
For his own portfolio, Dalio asserts that he does not like debt assets: “so if I’m going to take a tilt, it would be underweight in debt assets such as bonds,” he said.
Finance
Buffett denies social media rumors after Trump shares wild claim that investor backs president crashing market
Warren Buffett went on the record Friday to deny social media posts after President Donald Trump shared on Truth Social a fan video that claimed the president is tanking the stock market on purpose with the endorsement of the legendary investor.
Trump on Friday shared an outlandish social media video that defends his recent policy decisions by arguing he is deliberately taking down the market as a strategic play to force lower interest and mortgage rates.
“Trump is crashing the stock market by 20% this month, but he’s doing it on purpose,” alleged the video, which Trump posted on his Truth Social account.
The video’s narrator then falsely states, “And this is why Warren Buffett just said, ‘Trump is making the best economic moves he’s seen in over 50 years.'”
The president shared a link to an X post from the account @AmericaPapaBear, a self-described “Trumper to the end.” The X post itself appears to be a repost of a weeks-old TikTok video from user @wnnsa11. The video has been shared more than 2,000 times on Truth Social and nearly 10,000 times on X.
Buffett, 94, didn’t single out any specific posts, but his conglomerate Berkshire Hathaway outright rejected all comments claimed to be made by him.
“There are reports currently circulating on social media (including Twitter, Facebook and Tik Tok) regarding comments allegedly made by Warren E. Buffett. All such reports are false,” the company said in a statement Friday.
CNBC’s Becky Quick spoke to Buffett Friday about this statement and he said he wanted to knock down misinformation in an age where false rumors can be blasted around instantaneously. Buffett told Quick that he won’t make any commentary related to the markets, the economy or tariffs between now and Berkshire’s annual meeting on May 3.
‘A tax on goods’
While Buffett hasn’t spoken about this week’s imposition of sweeping tariffs from the Trump administration, his view on such things has pretty much always been negative. Just in March, the Berkshire CEO and chairman called tariffs “an act of war, to some degree.”
“Over time, they are a tax on goods. I mean, the tooth fairy doesn’t pay ’em!” Buffett said in the news interview with a laugh. “And then what? You always have to ask that question in economics. You always say, ‘And then what?'”
During Trump’s first term, Buffett opined at length in 2018 and 2019 about the trade conflicts that erupted, warning that the Republican’s aggressive moves could cause negative consequences globally.
“If we actually have a trade war, it will be bad for the whole world … everything intersects in the world,” Buffett said in a CNBC interview in 2019. “A world that adjusts to something very close to free trade … more people will live better than in a world with significant tariffs and shifting tariffs over time.”
Buffett has been in a defensive mode over the past year as he rapidly dumped stocks and raised a record amount of cash exceeding $300 billion. His conglomerate has a big U.S. focus and has large businesses in insurance, railroads, manufacturing, energy and retail.
How Donald Trump’s tariffs will probably fare in court
Here’s why ‘dead’ investors outperform the living
Checks and Balance newsletter: The view as “Liberation Day” unfolded
New 2023 K-1 instructions stir the CAMT pot for partnerships and corporations
The Essential Practice of Bank and Credit Card Statement Reconciliation
Are American progressives making themselves sad?
-
Economics1 week agoPCE inflation February 2025:
-
Economics1 week agoYoung Americans are losing confidence in economy, and it shows online
-
Accounting1 week agoIRS sets new initiative with banks to uncover fraud
-
Economics1 week agoConsumer sentiment worsens as inflation fears grow, University of Michigan survey shows
-
Economics1 week agoTexas troopers are in more and more lethal car chases
-
Blog Post1 week agoRecording Loan Transactions and Interest Payments for Financial Accuracy
-
Leaders1 week agoMark Cuban is The Maverick Entrepreneur Changing Business and Beyond
-
Technology1 week agoQuantum Computing is Transforming Industries, Security, and Future Technologies