The Rachman Review Is the US heading for a debt crisis?
25 snips
Jul 3, 2025 
Ray Dalio, founder of Bridgewater Associates and author of 'How Countries Go Broke', delves into the alarming scale of U.S. debt and its historical parallels with past crises. He emphasizes the cyclical nature of debt and warns of imminent risks that could threaten economic stability. The discussion also contrasts the U.S. situation with Japan's approach and explores the intertwining of debt, politics, and geopolitics. Dalio highlights the transformative potential of AI on the economy while stressing the importance of financial literacy in navigating these changes.
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US Debt Crisis Mechanics
- The US faces risk of a debt crisis similar to past crises where countries 'go broke' through debt default or currency devaluation.
- Debt service burdens act like plaque in the economy, squeezing spending and causing financial distress.
Debt Supply-Demand Imbalance Risk
- US must sell about $12 trillion in debt yearly but demand is insufficient, risking debt holders offloading more.
- Central banks may need to monetize debt, worsening the fiscal imbalance and risking system breakdown.
Cut Budget Deficit To 3% GDP
- To avert a crisis, America needs to reduce its budget deficit to about 3% of GDP.
- Achieving this is politically challenging but historically possible with disciplined fiscal policy.
