Ray Dalio, who predicted 2008 market crash, warns of US debt risks going beyond credit ratings; here's why

Billionaire investment manager Ray Dalio has warned that the risks of US debt go beyond credit ratings amid the US government's mounting debt in the current economic scenario. The founder of one of the world's largest hedge funds said that regarding the US debt downgrade, credit ratings understate risks because they rate the risk of the government not paying its debt.

According to Dalio, credit rating agencies do not include the greater risk that countries in debt will print money to pay their debts, thus causing bondholders to suffer losses from the decreased value of the money they are getting (rather than from the decreased quantity of money they are getting).

Dalio is the founder of Bridgewater Associates and one of the few to foresee the 2008 financial crisis. "Said differently, for those who care about the value of their money, the risks for US government debt are greater than the rating agencies are conveying,” added Dalio in a post on ‘X’ (formerly Twitter).

Ray Dalio on US debt risks

“The US debt downgrade, you should know that credit ratings understate credit risks because they only rate the risk of the government not paying its debt. They don't include the greater risk that the countries in debt will print money to pay their debts, thus causing holders of the bonds to suffer losses from the decreased value of the money they're getting (rather than from the decreased quantity of money they're getting). Said differently, for those who care about the value of their money, the risks for US government debt are greater than the rating agencies are conveying,” said Dalio on ‘X’.

Moody’s cut the US' sovereign credit rating by one notch to Aa1 from Aaa last Friday, citing the government’s expanding fiscal deficit and elevated interest costs that are higher than similarly rated sovereigns. The move made Moody’s the last of the three major rating agencies to strip the US of its top rating.

Ray Dalio on US recession amid tariff tensions

Dalio said last month that US President Donald Trump's trade war has brought the United States near to recession. He was asked on NBC if he thought the world's largest economy could dip into recession, as a result of a trade war that has roiled global markets.

The Bridgewater Associates founder said, “I think that right now we are at a decision-making point and very close to a recession.” The tariff plan includes duties on dozens of countries, but the planned start dates for many of those changed abruptly last week, with a 90-day pause for goods from many places except China.

Dalio said this had been "very disruptive" and the tariffs' impact was “like throwing rocks into the production system.” He also expressed worry about the potential combined impact of US debt, US budget deficit and global political tension.

“We're having profound changes in the world order... if you take tariffs, if you take debt, if you take the rising power challenging existing power... How that's handled could produce something that is much worse than a recession.”

He invoked market crises of 1971 and 2008 and said the current situation "could be more severe than those if these other matters simultaneously occur," he said. Dalio founded Connecticut-based Bridgewater roughly 50 years ago and has 175 investors, including pension funds, foundations and central banks.