Why is Ray Dalio’s debt alarmism so wrongheaded? The view here is that successful investing (Dalio is brilliant at it) is incredibly difficult, while economics is blindingly simple. The investor in Dalio is complicating what isn’t.
See his recent post on X: “When an empire runs out of its own money, it is able to increase the supply of money. However, printing more money causes borrowing to increase creating a financial bubble.” Wrong, and wrong again. Dalio the investor surely knows why.
Applying his analysis to the United States, if it were ever true that the U.S. were poised to run out of money in five, ten, thirty or even fifty years, investors like Dalio wouldn’t wait to price the known. Instead, yields on Treasuries that look five, ten and thirty years into the future would correct to reflect Treasury’s future lack of dollars, not to mention that the dollar would collapse to reflect the mere possibility that Treasury, the Fed, or the U.S. Mint might choose to “print” dollars to pay off the debt. As Dalio knows much better than I, markets anticipate.
Getting more specific about the U.S. that Dalio is plainly alluding to, in 1980 total federal debt was $900 billion alongside borrowing costs for Treasury (10-Year note) of 11 percent. Fast forward to 2026, and total federal debt is $38 trillion alongside borrowing costs of roughly 4.14%.
As is pointed out in The Deficit Delusion, greatly shrunken borrowing costs for Treasury are logical. And the $38 trillion in debt explains why. Money is ruthless, and the only way an entity could borrow so much would be if its prospects for paying back monies borrowed were thought by investors to be very certain. If the U.S. faced the prospect of running out of money, it would not have anywhere close to $38 trillion in debt.
Dalio contends that if a country runs out of money, “it is able to increase the supply of money.” Not really. Actually, not at all.
Any country thought to be both running out of money and liable to “print” to make up for what it doesn’t collect in taxes would no longer have a currency that circulates in any notable sense. That’s because products for products is the underlying basis for all monetary exchanges; meaning money in circulation represents production. No producer will accept money that’s printed in place of money earned via production. There’s a difference.
Forward looking markets at least for now are telling us that the U.S. will not be running out of money now, or far into the future. Treasury doesn’t need to do (print) what investors would not let it do.
Assuming the opposite, that there’s a day in the future where the U.S. will run out of money, it’s pure folly to assume that Treasury could mitigate the latter with so-called “money printing.” What producers or even government workers paid in dollars will accept dollars printed by Treasury, and that for being printed without any association with production, wouldn’t exchange for much production?
As for the borrowing that Dalio claims would follow the printing, please! Might he explain just who would lend to a nation that’s run out of money? Debt is trust, no ?
Dalio encourages his flock to watch a video (The Changing World Order) meant to vivify the alleged meaning of his debt alarmism, and sadly all too many will associate Dalio’s fears with the U.S. Except that if there were any validity to Dalio’s fears then there would be very little federal debt. Investors like Dalio would make sure of that.
Originally posted to Real Clear Markets.
