Billionaire investor Ray Dalio, founder of Bridgewater Associates, has sounded another stark warning about the financial trajectory of the United States. Speaking on global macroeconomic risks, Dalio argued that the world is losing its appetite for U.S. government debt at precisely the moment America appears least capable of curbing its ballooning spending. The convergence of these two forces, he cautions, could set the stage for a crisis that reshapes the global financial system.
A Growing Mismatch
The U.S. Treasury market—long regarded as the world’s safest and most liquid financial instrument—depends on steady demand from both domestic and foreign buyers. But Dalio sees cracks emerging in this foundation.
“Global investors, including major foreign governments, are increasingly hesitant to keep absorbing U.S. debt,” Dalio said. “At the same time, America’s fiscal trajectory is locked into rising deficits and spending commitments it cannot cut back without severe political and social consequences.”
The result is a looming supply-demand imbalance: more debt issuance than the market may be willing—or able—to absorb at current interest rates.
Why Foreign Buyers Are Pulling Back
For decades, countries such as China and Japan were reliable buyers of U.S. Treasuries, recycling their trade surpluses into American debt. But that dynamic is shifting for several reasons:
- Geopolitical Frictions – Rising U.S.-China tensions have made Beijing less reliant on dollar reserves, spurring efforts to diversify into gold and other assets.
- Rising Domestic Needs – Countries like Japan face their own fiscal pressures and may prioritize funding local obligations over accumulating Treasuries.
- Dollar Alternatives – While the dollar remains dominant, the push toward yuan-denominated trade settlements and other alternatives suggests a gradual erosion of dollar-centric finance.
- Higher Yields Elsewhere – With global interest rates rising, Treasuries are no longer the only safe haven offering respectable returns.
Dalio noted that even U.S. domestic buyers, such as pension funds and banks, face constraints due to tighter regulations and balance-sheet stress.
America’s Spending Dilemma
On the other side of the equation lies America’s entrenched spending. Federal deficits are projected to exceed $1.5 trillion annually over the coming years, driven by:
- Entitlement programs such as Social Security and Medicare, which continue to grow as the population ages.
- Defense spending, which remains high amid global security tensions.
- Interest costs, which have surged as higher rates make servicing the existing $34+ trillion national debt more expensive.
Dalio emphasized that unlike in past decades, Washington now faces little political will to rein in spending. “Cutting back would mean slashing benefits, reducing defense, or raising taxes significantly,” he said. “None of these are politically viable.”
The Risk of a Debt Spiral
If demand for Treasuries continues to weaken while issuance expands, the U.S. risks entering a vicious cycle:
- The government issues more debt.
- Investors demand higher yields to absorb it.
- Higher yields increase the cost of servicing the debt.
- That cost drives further borrowing.
This debt spiral, Dalio warned, could undermine the dollar’s reserve currency status over time. While no single competitor is poised to dethrone the dollar immediately, a gradual erosion of confidence could accelerate if investors perceive U.S. debt as unsustainable.
Echoes of Past Warnings
Dalio has long cautioned about the dangers of debt cycles, both in the U.S. and globally. His framework distinguishes between “short-term” and “long-term” debt cycles, with the latter culminating in painful periods of deleveraging, inflation, or financial restructuring.
The current U.S. trajectory, he suggested, is reminiscent of late-stage cycles seen in other great powers throughout history, where excessive debt and political paralysis undermined fiscal credibility.
What Comes Next?
Dalio did not predict an immediate collapse but rather a mounting risk that could play out over the next decade. Possible scenarios include:
- Higher Inflation if the Federal Reserve ultimately accommodates debt issuance by easing policy.
- Market Volatility as Treasury auctions face weak demand.
- Global Realignments if countries accelerate diversification away from dollar assets.
For investors, Dalio suggested preparing for more instability across bond and currency markets, while keeping an eye on assets such as gold, commodities, and non-U.S. equities as potential hedges.
A Global Reckoning
Dalio’s message was clear: the U.S. cannot count on endless global demand for its debt, and yet it has little capacity to change its spending habits. This structural tension is not merely an American problem but one with profound global implications, since Treasuries underpin the world’s financial system.
“The world has financed America’s deficits for decades,” Dalio said. “But if that willingness fades, the U.S. will face a reckoning—and so will the global economy.”
