A billionaire investor said that reducing the budget deficit can help to stabilize the bond market.
Ray Dalio, a billionaire investor, thinks that the U.S. economy could be healthier. He said it is possible if the government spends less money than it does now. He believes if the economy’s budget deficit is reduced, the bond market and low interest rates could be more stable.
Dalio, who started Bridgewater, one of the world‘s largest hedge funds, gave further explanations. He explained that right now, the U.S. government is spending way more than it earns. This deficit is about 7.5% of what the entire country makes in a year (GDP).
“If the government reduces rising financing costs to just 3%, there would not be as many bonds flooding the market. Also, things would balance out better,” Dalio said.
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He explained that it is a clear problem with a clear solution. The government has to sell a lot of bonds to cover its spending, which creates a big oversupply. Dalio said that this situation has happened before. But it is something the country can fix if it reduces its deficit.
The national debt in the U.S. has grown to over $36 trillion. The debt is this high because of a mix of things. The government is spending more money, tax collections are going down, and borrowing money has become more expensive. In 2024, the government spent so much on paying interest on its debt that it was the fourth most significant expense. The expense only came after Social Security, the military, and health care.
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The well-known investor said that to reduce the budget deficit, which is the gap between how much the government spends and how much it earns, leaders need to either need to raise taxes, cut spending, or do both. However, this can only work if politicians agree and work together.
Ray Dalio called this solution the “3% solution.” He further said that the interest payments on the national debt have become so huge that they matter more than spending and taxes. He said the real problem is not just the budget deficit; it is the way politics is divided and how hard it is for politicians to work as a team. However, Dalio is sure that reducing the budget deficit can help to stabilize the bond market.