Ray Dalio, founder of one of the world’s largest hedge fund, Bridgewater Associates, is warning, “We’re going to have a debt crisis in this country.” The billionaire investor made his dire prediction as Congress argued over spending plans for the new fiscal year, ultimately agreeing to a 45-day spending agreement that avoided a U.S. government shutdown. Interest payments on U.S. Treasury debt were not at risk during the debate.
The U.S. debt continues soaring into record territory, now above $33 trillion, having climbed steadily over the past ten years, particularly due to aggressive spending to support the economy during the COVID-19 crisis. As of August 2023, the U.S. was paying $808 billion in interest on the debt, 15 percent of total federal spending.
Interest expenses have been relatively stable over the decade due to low interest rates. Now, rates have shot up—the Treasury currently must pay more than five percent to buyers of Treasury bills and notes with maturities of two years or less—a fact that will significantly increase Washington’s interest obligations.Higher interest rates are beginning to have their intended effect on borrowing and spending. “I think you’re going to get a meaningful slowing of the economy,” Dalio said. If U.S. economic growth does slow, that will almost certainly reduce tax revenues and further increase the national debt, unless Washington cuts spending.
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