Ray Dalio right of reply: The Financial Times' mischaracterisations of what I said

Key topics:Rising US debt risks a "debt-induced economic heart attack"Fed independence under threat as Trump pressures central bankState-driven intervention shifts US toward authoritarian capitalism.Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here.Support South Africa’s bastion of independent journalism, offering balanced insights on investments, business, and the political economy, by joining BizNews Premium. Register here.If you prefer WhatsApp for updates, sign up to the BizNews channel here..By Ray Dalio*.I did an interview with the FT in which, for accuracy, I had them submit their questions in writing and I replied in writing. They then did not publish the exchange and instead published mischaracterisations of what I said. For accuracy, I am providing the actual questions and answers here for you to read. I strive to be as accurate as I can be in a world full of harmful conflict and partisanship in which distortions and sensationalism are threats to everyone’s well-being. Sometimes those in the media help, and sometimes they have their own other agendas. For me, the choice is between not saying anything and playing it safe or trying to speak in an analytical, non-partisan way and risk being politicised. To me, the greater risk is in not speaking up. If you want to see what I was asked and what I said, here it is.Debt, Inflation & the Fed1. You’ve warned for years about America's overwhelming debt burden. How do you see Trump's tax and spending promises affecting that trajectory? Is this time more sensitive than ever?Yes. The worsened condition is due to years of excesses, like overeating fatty foods and smoking over a lifetime. The cumulative effects have brought about the current conditions, and the great excesses that are now projected as a result of the new budget will likely cause a debt-induced heart-attack in the relatively near future—I'd say three years, give or take a year or two.I'll explain.The credit circulatory system is like the human circulatory system in that it brings nutrients to different parts of the body. If the credit and debt are used to create income that is large enough to service the debt, then the system is working well and healthy. But if the debt and debt service expenditures grow faster than the incomes, they build up like plaque that squeezes out other spending. It is easy to see that happening. The U.S. government’s debt service payments now equal about $1 trillion a year in interest and are increasing at a fast rate, with about $9 trillion needed to roll over the debt. That squeezes out other spending. The more that happens, the closer the country is to a debt-induced economic heart attack. Also, when there is a lot of existing debt plus a lot of new debt that is being created to finance deficit spending, the supply of debt being sold is much greater than the demand for it. Over the next year, the Federal government will spend about $7 trillion and take in only about $5 trillion, so it will have to sell an additional roughly $2 trillion in debt, in addition to the $1 trillion it has to sell to pay interest plus the $9 trillion it has to raise to roll over the debt. Things are likely to get worse than that because when creditors become worried about the debt assets not being good storeholds of wealth, they sell them. That is a classic sign of the big debt cycle entering the traumatic last phase. At this stage in the cycle, the central bank must decide whether to allow interest rates to go up and have a debt default crisis, or to print money and buy the debt that others won't buy to try to hold real interest rates down, which will lower the value of money. Another classic sign of coming to the turbulent end of the big debt cycle is central banks doing a lot of printing money and buying debt and then losing so much on the debt assets that they bought that, at that stage, both the central bank and the central government need to borrow more money. This leads to the central bank printing even more money to service the large debts that they have. By all the classic measures, we are late in the big debt cycle, and if those who shape policies don't change policies, there will be a debt service problem coupled with a debt supply-and-demand problem that will cause a debt-induced economic heart attack..Read more:.FT: US sliding towards 1930s-style autocracy, warns Ray Dalio.2. Trump has threatened to fire Fed Chair Jay Powell and recently ousted Governor Lisa Cook. How dangerous is it if the Fed loses its independence while debt is surging?The long tradition of central banks being independent from central governments' political leaders has existed because of the widely held belief that the government leaders will be politically motivated to lower interest rates and make credit easier than is good for creditors because doing that will lower the real interest rates that the bond holders will get. That lowers the value of debt as a storehold of wealth, which reduces the demand for the debt and leads to problems. Because one man's debts are another man's assets, for the central bank to be effective, it has to keep real interest rates high enough to satisfy creditors without being so high that they hurt debtors. If the independence of the Fed is reduced to the point where investors think there is a high risk that interest rates being unnaturally lowered so that bonds won't be a good storehold of wealth, we will see an unhealthy decline in the value of money. The fact that this dynamic is arriving at the same time as international holders of dollar-denominated bonds are reducing their holdings of U.S. bonds and increasing their holdings of gold due to geopolitical worries is also classically symptomatic of big cycle being in its late stages.3. If a politically weakened Fed lets inflation “run hot,” what does that mean for bonds, the dollar, and America’s creditworthiness?It would lead bonds and the dollar to go down in value and, if not rectified, would lead to them being an ineffective storehold of wealth and the breaking down of the monetary order as we know it.Trump’s Interventionism in Business4. Trump has taken a $10bn stake in Intel “for zero,” skimmed Nvidia and AMD’s China revenues, and imposed a golden share at US Steel. Do you see these as early signs of state capitalism with American characteristics?Yes. As a classic part of the Big Cycle, the increased wealth and values gaps lead to increased populism of the right and populism of the left and irreconcilable differences between them that can't be resolved though the democratic process. At such times, democracies weaken and more autocratic leadership increases as a large percentage of the population wants government leaders to get control of the system to make things work well them—e.g., "to make the trains run on time.” Also, in a world in which there are great conflicts and possibly even wars between countries, governments increasingly take control of what businesses do. For example, it is now the case that whichever country wins the technology and economic wars will win the more important geopolitical and possibly military wars. So governments are now increasingly taking control of businesses and the economy. The part of the Big Cycle that we are in is most analogous to the 1928 to 1938 period.5. Some call it authoritarian. Others say it resembles socialism. How would you characterise Trump’s economic model?I'd rather not put labels on it because labels are evocative and lead to bad reactions. I'd rather try to explain the mechanics of what is happening in a less evocative way, so that is what I'm doing.6. How do these interventions affect America’s reputation as the world’s safest place for capital?Markets & Global Standing7. Do Trump’s moves risk undermining global confidence in Treasuries, the dollar, and America’s debt sustainability?Yes, though I wouldn’t just attribute this situation to Trump's moves. As mentioned, the dynamic that I am describing has been going on for a long time under presidents from both parties, though it started to intensify in 2008 and has accelerated since 2020.8. Could this interventionism accelerate a shift away from the US as the world’s financial safe haven?Crypto & the Dollar9. Do you see deregulation as a risk for the dollar’s reserve status?No, but I do see the dollar and the other reserve currency governments' bad debt situations as threatening to their appeals as reserve currencies and storeholds of wealth, which is what has been contributing to the rises in gold and cryptocurrency prices.10. Is the exposure that stablecoins have to Treasuries a potential systemic risk?I don't think so. However, I see a fall in the real purchasing power of Treasuries as being a real risk. That shouldn't produce any systemic risk in stablecoins if they are well-regulated.11. Could crypto meaningfully replace the dollar, or does it pose different dangers altogether?Crypto is now an alternative currency that has its supply limited, so, all things being equal, if the supply of dollar money rises and/or the demand for it falls, that would likely make crypto an attractive alternative currency. I think that most fiat currencies, especially those with large debts, will have problems being effective storeholds of wealth and will go down in value relative to hard currencies. This is what happened in the 1930 to 1940 period and the 1970 to 1980 period.Elite Silence vs. Selective Outrage12. When New York mayoral candidate Zohran Mamdani floated socialist ideas, CEOs and billionaires reacted with fury. Why do you think the same people are silent when Trump undermines free enterprise?I think that what is happening now politically and socially is analogous to what happened around the world in the 1930-40 period because, like in the 1930 to 40 period, the gaps in wealth, gaps in values, and views about what policy should be have become more extreme—and the willingness to compromise, lose elections because of voting results, and trust in the system have dwindled. I think most people are silent because they are afraid of retaliation if they speak up.13. Is the real threat to American capitalism coming from the far left — or from Trump’s brand of interventionism?It is coming from the same five forces that have always driven big cycle changes. They are 1) the big debt cycle that will likely lead to big debt problems that will threaten the existing monetary order, 2) big political problems within countries that are threatening existing political orders, 3) big geopolitical problems between countries that are threatening the existing world geopolitical order, 4) big acts of nature such as drought, floods and pandemics (most importantly climate change), and 5) mankind's creating big impact through new technologies, most importantly artificial intelligence. The interaction of these five forces will lead to huge and unimaginable changes over the next 5 years..Posted on the Official X account of Ray Dailo,* founder of Bridgewater Associates, author of #1 New York Times bestseller 'Principles,' professional mistake maker

Ray Dalio right of reply: The Financial Times' mischaracterisations of what I said

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