I was interviewed by the Financial Times, and to ensure accuracy, I requested that they submit their questions in writing, to which I also responded in writing. However, they did not publish our communication and instead misrepresented my remarks. For the sake of accuracy, I am providing the actual questions and answers here for everyone to read. In a world full of harmful conflicts and partisan biases, I strive to remain accurate; distortion and sensationalism pose a threat to everyone's well-being. Sometimes the media can be helpful, but at other times they have their own ulterior motives. For me, the choice is either to remain silent for safety or to attempt to speak in an analytical, non-partisan manner and risk being politicized. For me, the risk of not speaking out is greater. If you want to know what I was asked and what I said, here are the specifics.
Debt, Inflation, and the Federal Reserve
For many years, you have warned about the heavy burden of U.S. debt. How do you view the impact of Trump's tax and spending commitments on this trend? Is it more sensitive now than ever before?
Yes. The deteriorating situation stems from years of excessive consumption, akin to long-term binge eating, smoking, and so on. These cumulative effects have led to the current state, and the excessive consumption anticipated from the new budget is likely to trigger a debt-induced "economic heart attack" in the near future — I estimate in three years, possibly a year or two earlier or later.
Let me explain.
The credit cycle system is similar to the human circulatory system, delivering nutrients to various parts of the body. If the income generated by credit and debt is sufficient to repay the debts, then this system operates well and healthily. However, if the growth rate of debt and debt repayment expenditures exceeds the growth rate of income, they will accumulate like plaques, squeezing out other expenditures. This situation can easily occur. The U.S. government's debt repayment expenditures currently amount to about $1 trillion in interest per year, and this is rapidly increasing, while simultaneously needing about $9 trillion to roll over the debt. This squeezes out other expenditures. The more severe this situation, the closer the country gets to an economic heart attack triggered by debt. Furthermore, when there is a lot of existing debt and a lot of new debt created for deficit spending, the supply of debt sold will far exceed the demand. Next year, the federal government will spend about $7 trillion, while the revenue will only be about $5 trillion, so in addition to needing to sell $1 trillion to pay interest and raise the $9 trillion needed to roll over the debt, it must also sell about $2 trillion in debt. The situation could worsen because when creditors worry that debt assets cannot serve as a good store of wealth, they will sell them. This is a typical sign of the large debt cycle entering a traumatic final stage. At this stage, central banks must decide whether to allow interest rates to rise and trigger a debt default crisis, or to print money and buy debt that others will not buy in an attempt to suppress real interest rates, but this will decrease the value of the currency. Another typical sign that the large debt cycle is about to end is that central banks are printing a lot of money and buying debt, then suffering heavy losses on the purchased debt assets, to the extent that at this stage, both the central bank and the central government need to borrow more funds. This leads the central bank to print more money to repay the huge debt. According to all classic indicators, we are in the late stage of the large debt cycle, and if policymakers do not change their policies, issues of debt repayment and debt supply and demand will arise simultaneously, ultimately leading to an "economic heart attack" triggered by debt.
Trump threatened to fire Federal Reserve Chairman Jay Powell and recently dismissed Federal Reserve Governor Lisa Cook. How dangerous would it be if the Federal Reserve lost its independence amid soaring debt?
The central bank has long maintained a tradition of independence from the political leaders of the central government, stemming from the widespread belief that government leaders, motivated by political incentives, tend to lower interest rates and ease credit, which is unfavorable to creditors as it reduces the real interest rates for bondholders. This decreases the value of debt as a means of storing wealth, thereby reducing the demand for debt and causing problems. Since one person's debt is another person's asset, for the central bank to operate effectively, it must keep real interest rates at a sufficiently high level to meet the interests of creditors, but not so high that it harms the interests of debtors. If the Federal Reserve's independence were to diminish to the point that investors believe interest rates are being unnaturally lowered, thus making bonds no longer a good store of wealth, we would see an unhealthy decline in the value of currency. Current international investors holding U.S. dollar bonds are reducing their holdings of U.S. bonds and increasing their holdings of gold due to geopolitical concerns, which is also a typical symptom of the later stages of a major cycle.
If a politically weakened Federal Reserve allows inflation to "overheat", what does this mean for bonds, the dollar, and the credit rating of the United States?
This will lead to a decline in the value of bonds and the dollar, and if not corrected, will render them ineffective as stores of wealth, resulting in the collapse of the monetary order as we know it.
Trump's interventionism in business
Trump acquired $10 billion worth of shares in Intel at "zero cost," extracting a portion of the revenue from NVIDIA and AMD in China, and enforcing a golden share system at U.S. Steel. Do you think these are early signs of American-style state capitalism?
Yes. As a typical characteristic of the larger cycle, the widening gap in wealth and values has led to an increase in both right-wing and left-wing populism, as well as irreconcilable contradictions between the two that cannot be resolved through democratic processes. During such times, democracy is weakened, and authoritarian leadership increases, as the majority of the population wishes for government leaders to control the system to keep it functioning well – for example, "keeping the trains running on time." Additionally, in a world with significant conflicts or even wars between nations, governments will increasingly control the operations of businesses. For instance, whichever country wins the technological and economic war will prevail in more significant geopolitical or even military wars. Therefore, governments are now exerting more control over businesses and the economy. The large cycle phase we are in is most similar to the period from 1928 to 1938.
Some call it authoritarianism, while others say it resembles socialism. How would you describe Trump's economic model?
I am reluctant to label it because labels can easily trigger emotional reactions, leading to adverse responses. I prefer to explain the mechanisms of what is happening in a less emotional way, which is what I am doing.
How do these interventions affect the reputation of the United States as the safest capital hub in the world?
No response
Market and Global Status
Will Trump's measures undermine global confidence in U.S. Treasuries, the dollar, and the sustainability of U.S. debt?
Yes, but I won't attribute this situation solely to Trump's actions. As previously mentioned, the dynamic I described has been ongoing for a long time during both parties' presidential terms, although it has intensified since 2008 and accelerated since 2020.
Will this interventionism accelerate the shift of the United States' status as the world's financial safe haven?
No response
Cryptocurrency and US Dollar
Do you think relaxing regulations would threaten the dollar's status as a reserve currency?
No, but I do believe that the poor debt situation of the governments of the dollar and other reserve currencies poses a threat to their attractiveness as reserve currencies and stores of wealth, which is also a reason for the rise in the prices of gold and cryptocurrencies.
Does the exposure of stablecoins to U.S. Treasury bonds pose a potential systemic risk?
I don't think so. However, I believe that the decline in the actual purchasing power of U.S. Treasury bonds is a real risk. If stablecoins are well-regulated, this should not pose any systemic risk.
Can cryptocurrency truly replace the US dollar, or will it bring entirely different dangers?
Cryptocurrency is now a limited-supply alternative currency, and therefore, all else being equal, an increase in the supply of the US dollar and/or a decrease in demand could make cryptocurrency an attractive alternative currency. I believe that most fiat currencies, especially those with massive debts, will struggle to be effective stores of wealth and will depreciate relative to hard currencies. This has occurred during the periods of 1930 to 1940 and 1970 to 1980.
Elite Silence and Selective Anger
When New York City mayoral candidate Zohran Mamdani proposed socialist ideas, CEOs and billionaires reacted strongly. Why do you think these people remain silent when Trump undermines free enterprise?
I believe that the current political and social situation is similar to what happened globally between the 1930s and 1940s, because, like in the 1930s and 1940s, the wealth gap, the gap in values, and policy perspectives have become more extreme, with a decreased willingness to compromise, acceptance of defeat due to election results, and a reduction in trust in the system. I think most people remain silent because they fear retaliation if they speak out.
Is the real threat to American capitalism coming from the extreme left or from Trump's interventionism?
Threats arise from five major forces that have historically driven significant cyclical changes. They are: 1) a severe debt cycle that could lead to serious debt problems, threatening the existing monetary order; 2) significant political issues within nations that could threaten the existing political order; 3) major geopolitical issues between nations that could threaten the existing world geopolitical order; 4) significant natural disasters such as droughts, floods, and epidemics (with climate change being the most important); and 5) the enormous impact created by humanity through new technologies, particularly artificial intelligence. The interaction of these five forces will trigger immense and unimaginable changes in the next five years.
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Bridgewater Associates founder: On the misrepresentation of my remarks by the Financial Times
Author: Ray Dalio
Compiled by: Block unicorn
I was interviewed by the Financial Times, and to ensure accuracy, I requested that they submit their questions in writing, to which I also responded in writing. However, they did not publish our communication and instead misrepresented my remarks. For the sake of accuracy, I am providing the actual questions and answers here for everyone to read. In a world full of harmful conflicts and partisan biases, I strive to remain accurate; distortion and sensationalism pose a threat to everyone's well-being. Sometimes the media can be helpful, but at other times they have their own ulterior motives. For me, the choice is either to remain silent for safety or to attempt to speak in an analytical, non-partisan manner and risk being politicized. For me, the risk of not speaking out is greater. If you want to know what I was asked and what I said, here are the specifics.
Debt, Inflation, and the Federal Reserve
Yes. The deteriorating situation stems from years of excessive consumption, akin to long-term binge eating, smoking, and so on. These cumulative effects have led to the current state, and the excessive consumption anticipated from the new budget is likely to trigger a debt-induced "economic heart attack" in the near future — I estimate in three years, possibly a year or two earlier or later.
Let me explain.
The credit cycle system is similar to the human circulatory system, delivering nutrients to various parts of the body. If the income generated by credit and debt is sufficient to repay the debts, then this system operates well and healthily. However, if the growth rate of debt and debt repayment expenditures exceeds the growth rate of income, they will accumulate like plaques, squeezing out other expenditures. This situation can easily occur. The U.S. government's debt repayment expenditures currently amount to about $1 trillion in interest per year, and this is rapidly increasing, while simultaneously needing about $9 trillion to roll over the debt. This squeezes out other expenditures. The more severe this situation, the closer the country gets to an economic heart attack triggered by debt. Furthermore, when there is a lot of existing debt and a lot of new debt created for deficit spending, the supply of debt sold will far exceed the demand. Next year, the federal government will spend about $7 trillion, while the revenue will only be about $5 trillion, so in addition to needing to sell $1 trillion to pay interest and raise the $9 trillion needed to roll over the debt, it must also sell about $2 trillion in debt. The situation could worsen because when creditors worry that debt assets cannot serve as a good store of wealth, they will sell them. This is a typical sign of the large debt cycle entering a traumatic final stage. At this stage, central banks must decide whether to allow interest rates to rise and trigger a debt default crisis, or to print money and buy debt that others will not buy in an attempt to suppress real interest rates, but this will decrease the value of the currency. Another typical sign that the large debt cycle is about to end is that central banks are printing a lot of money and buying debt, then suffering heavy losses on the purchased debt assets, to the extent that at this stage, both the central bank and the central government need to borrow more funds. This leads the central bank to print more money to repay the huge debt. According to all classic indicators, we are in the late stage of the large debt cycle, and if policymakers do not change their policies, issues of debt repayment and debt supply and demand will arise simultaneously, ultimately leading to an "economic heart attack" triggered by debt.
The central bank has long maintained a tradition of independence from the political leaders of the central government, stemming from the widespread belief that government leaders, motivated by political incentives, tend to lower interest rates and ease credit, which is unfavorable to creditors as it reduces the real interest rates for bondholders. This decreases the value of debt as a means of storing wealth, thereby reducing the demand for debt and causing problems. Since one person's debt is another person's asset, for the central bank to operate effectively, it must keep real interest rates at a sufficiently high level to meet the interests of creditors, but not so high that it harms the interests of debtors. If the Federal Reserve's independence were to diminish to the point that investors believe interest rates are being unnaturally lowered, thus making bonds no longer a good store of wealth, we would see an unhealthy decline in the value of currency. Current international investors holding U.S. dollar bonds are reducing their holdings of U.S. bonds and increasing their holdings of gold due to geopolitical concerns, which is also a typical symptom of the later stages of a major cycle.
This will lead to a decline in the value of bonds and the dollar, and if not corrected, will render them ineffective as stores of wealth, resulting in the collapse of the monetary order as we know it.
Trump's interventionism in business
Yes. As a typical characteristic of the larger cycle, the widening gap in wealth and values has led to an increase in both right-wing and left-wing populism, as well as irreconcilable contradictions between the two that cannot be resolved through democratic processes. During such times, democracy is weakened, and authoritarian leadership increases, as the majority of the population wishes for government leaders to control the system to keep it functioning well – for example, "keeping the trains running on time." Additionally, in a world with significant conflicts or even wars between nations, governments will increasingly control the operations of businesses. For instance, whichever country wins the technological and economic war will prevail in more significant geopolitical or even military wars. Therefore, governments are now exerting more control over businesses and the economy. The large cycle phase we are in is most similar to the period from 1928 to 1938.
I am reluctant to label it because labels can easily trigger emotional reactions, leading to adverse responses. I prefer to explain the mechanisms of what is happening in a less emotional way, which is what I am doing.
No response
Market and Global Status
Yes, but I won't attribute this situation solely to Trump's actions. As previously mentioned, the dynamic I described has been ongoing for a long time during both parties' presidential terms, although it has intensified since 2008 and accelerated since 2020.
No response
Cryptocurrency and US Dollar
No, but I do believe that the poor debt situation of the governments of the dollar and other reserve currencies poses a threat to their attractiveness as reserve currencies and stores of wealth, which is also a reason for the rise in the prices of gold and cryptocurrencies.
I don't think so. However, I believe that the decline in the actual purchasing power of U.S. Treasury bonds is a real risk. If stablecoins are well-regulated, this should not pose any systemic risk.
Cryptocurrency is now a limited-supply alternative currency, and therefore, all else being equal, an increase in the supply of the US dollar and/or a decrease in demand could make cryptocurrency an attractive alternative currency. I believe that most fiat currencies, especially those with massive debts, will struggle to be effective stores of wealth and will depreciate relative to hard currencies. This has occurred during the periods of 1930 to 1940 and 1970 to 1980.
Elite Silence and Selective Anger
I believe that the current political and social situation is similar to what happened globally between the 1930s and 1940s, because, like in the 1930s and 1940s, the wealth gap, the gap in values, and policy perspectives have become more extreme, with a decreased willingness to compromise, acceptance of defeat due to election results, and a reduction in trust in the system. I think most people remain silent because they fear retaliation if they speak out.
Threats arise from five major forces that have historically driven significant cyclical changes. They are: 1) a severe debt cycle that could lead to serious debt problems, threatening the existing monetary order; 2) significant political issues within nations that could threaten the existing political order; 3) major geopolitical issues between nations that could threaten the existing world geopolitical order; 4) significant natural disasters such as droughts, floods, and epidemics (with climate change being the most important); and 5) the enormous impact created by humanity through new technologies, particularly artificial intelligence. The interaction of these five forces will trigger immense and unimaginable changes in the next five years.