Bridgewater Associates Founder Ray Dalio Talks Debt Burden, Bonds

**SPEAKER_1** (0:02)
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**Dani Burger** (0:07)
I'm Dani Burger, and I'm so pleased. I'm here at the Forbes event sitting alongside Ray Dalio, founder of, of course, Bridgewater and of the Dalio Family Office. Ray, thank you so much for joining.

**Ray Dalio** (0:19)
It's a treat.

**Dani Burger** (0:20)
And look, you've been doing a lot of work. You've been busy with these five forces that have been shaping the global economy, just to quickly go through them. Money and debt, internal order and disorder, power conflict, acts of nature, and technology. I want to start on that first one though, because it's a point that you've made globally, but here in the US, $7 trillion in spending, but only $5 trillion in revenue. Ray, are we already past the point of no return, that the fact we have this dynamic means that some sort of crisis is inevitable?

**Ray Dalio** (0:51)
Yes, we're past the point of no return, meaning when debt service payments squeeze out spending, like plaque in the circulatory squeezes out the flow of money, the flow of blood, it's the same kind of thing. It could be measured. So we're seeing that happen. And then there's a supply and a demand issue.
The supply of one budget deficit means that debt has to be sold, and you have a supply-demand issue. And we could see it happening in the bond market, and we could see that bonds have been a bad investment, and that there's pressure in interest rates, and there's borrowing.
And that's one of the five factors, as you're saying. But that dynamic is happening. People are treating it like if it hasn't happened before. They don't understand that like plaque in the arteries, that it builds up and they have that exposure. So I think when you're looking, I think of a particularly vulnerable period is after the midterm elections and before the presidential election, because as we connect these forces, we have that issue, the dead issue. And we also are going to have a great deal of political conflict that has implications for taxes, it has implications for all sorts of things.

**Dani Burger** (2:20)
So what does history tell us that this looks like? When we get closer to that point, is it yields reaching a certain level? Is it failed auctions? What would you look for to say, the time is here, the bond temper tantrum is finally occurring?

**Ray Dalio** (2:34)
Well, it could be seen, excuse me, in either the bond market, the market action. It's by long rates rising relative to short rates. In other words, they're trying to hold the short rates down and the long rates are rising.

**Dani Burger** (2:49)
We are seeing some of that.

**Ray Dalio** (2:51)
And you're then you're seeing the weakening then of the dollar.
And then you're seeing movements such as in gold and other assets. And when you see that rise in rates, then that starts to affect the stock market. Because what's happened now is that with bonds going down and stocks going up, the perspective returns now of stocks are now down, low, relative to the perspective returns of bonds.
And so that upward pressure then starts to translate into a stock market pressure. That is the classic dynamic. And something that the Federal Reserve then or any central bank is in a position of not easily being able to manage because it becomes more of a stagflationary environment. So the stagflation that we're seeing right now, the Fed wrestles with the question. If it's tightening or if it's easing, that also has in a economy where there is such a wealth disparity. But also think about the implications of whether you own stocks or whether you don't own stocks and that difference. That impact is very different. That has huge political implications.

**Dani Burger** (4:10)
I say given that-

**Ray Dalio** (4:10)
So that's where that period-

**Dani Burger** (4:11)
Because this is an administration that has been very explicit in its desire for cuts. And this is part of the reason that Kevin Warsh is now our Fed Chair, who of course has said, I am independent. Do you think throughout history, there's often been bond markets that test a Federal Reserve Chair? Is Kevin Warsh about to get a big test?

**Ray Dalio** (4:30)
Of course.
One man's debts are another man's assets.
Okay. And if there's not a high enough real return, then those bonds are not appreciated. Okay. So what are you holding the bond for? You're holding it for a real return. So the markets ultimately, the marketplace can ultimately decide whether it owns it or not, right?

**Dani Burger** (4:58)