Billionaire hedge fund legend Ray Dalio says that the financial situation in the US presents a high likelihood of serious problems moving forward.
In a new interview on PBS’s Amanpour and Company, Dalio, founder of Bridgewater Associates, says that the US government is in a situation where it absolutely must lower its budget deficit as a percentage of GDP from 7% to 3%.
According to Dalio, the government must take a three-step approach to lowering the deficit-to-GDP ratio if it wants to avoid a “very high likelihood of real problems.”
“It has to be done with three things, and it has to be spread out among these three things, because any one of those three things would be too painful. Those three things are tax revenue, spending cuts and interest rates.
Although Congress and the president in the process does not deal directly with the third of those, right now a trillion dollars – half of our deficit – is interest payments, and not only do we have a trillion dollar interest payment, in the next year, we have nine trillion dollars of debt maturing that has to be either rolled over or sold…
So there’s what I call my 3%, three-part solution, which was very similar to 1991-1998. It was cut by 5% of GDP, the budget deficit, in those years was cut by 5% of GDP by spreading it around. So those are the three things that are needed.”
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