Billionaire Dalio, co-founder of the U.S. hedge fund Bridgewater, warned that Trump must immediately commit to cutting the fiscal deficit or the United States will face a serious debt crisis within three years.

Dalio said in an interview with the Odd Lots podcast on Monday:

If you don't take action, you will be in trouble. I can't tell you exactly when the crisis breaks out, like a heart attack, you'll just get closer and closer to it. I guess the crisis will happen in about three years, possibly one year ahead or one year later.

U.S. debt problems are intensifying, and U.S. bond buyers are losing

Dalio's warning comes as Trump's team attempts to cut annual fiscal deficits while maintaining large-scale tax cuts. Data shows that the U.S. fiscal deficit has soared to $1.8 trillion, while Dalio urged to reduce the deficit to less than 3% of GDP to guard against potential financial risks.

He stressed that if no action is taken, the consequences will be borne by you. At that time, if the debt crisis triggers economic turmoil, voters will not be satisfied and must be held responsible.

In addition, he is worried that the United States will need to continuously issue new debts to repay old debts, but now it may face the problem of insufficient buyers. Dalio is not the only person to worry about, and JPMorgan analysts also pointed out at the end of 2022 that the three major buyers of U.S. Treasury bonds - foreign central banks, U.S. banks and the Federal Reserve - have withdrawn from the market at the same time for the first time.

Dalio said:

When you continue to add new debts on the basis of existing debts, the problem is not just the old debt, but you also need to find enough buyers to digest new debts. You have to sell these bonds to individuals, institutions, central banks or sovereign wealth funds.

The world is facing increased sanctions, oversupply of bonds, and when I calculate who the buyers are and how much we need to sell, I find a serious imbalance, and I know how that will happen.

As a senior investor, Dalio experienced the historic moment when President Nixon announced the decoupling of the US dollar from gold in 1971.

He believes that today's markets may face a similar shock—the United States may take measures at some point in holding large amounts of U.S. Treasury bonds, including stopping interest payments and even restructuring debts. "The restructuring debt may be announced, but they will not call it a default. They will say 'We will be better under this.'" Dalio questioned the potential "Malaise Agreement" when asked what he thinks about the potential "Malaise Agreement". He believes that even if the United States takes such measures, it will not ultimately lead to a depreciation of the US dollar alone, but global currencies will decline together: "This is like a 'who is ugly' competition, and central banks will react, and the result may be as depreciated against gold or other hard assets as in the 1970s and even in the 1930s." Dalio's view is that modern monetary systems rely on credit creation, that is, the issuance of currencies is essentially based on debt. For example, when issuing treasury bonds, it is actually borrowing money, and at the same time, corresponding debts appear in the market.

Money systems in most modern economies are based on debt rather than directly supported by physical assets (such as gold). One problem with this system is that if there is too much debt and investors lose confidence in it, the currency will quickly depreciate and may even lead to a financial crisis.

I am optimistic about gold and Bitcoin

Because global currencies (especially the US dollar) are based on debt systems, and countries may depreciate their local currencies under debt pressure (such as through inflation or low interest rates), Dalio believes that investors need to think: Is there a relatively stable alternative currency that does not rely on debt?

Dalio said:

"Bitcoin may be one of the candidates and may even become a very important part. But what exactly is a real alternative currency? Because debt is money, and money is essentially debt." Dalio said he believes that the advantage of Bitcoin as a safe-haven asset is that unlike real estate, it will not be fixed somewhere and therefore not easily taxed or confiscated. When asked if he is more optimistic about gold than ever, Dalio replied, "Oh, yes. I think gold - I don't want to overemphasize gold, nor do people want to rush to buy... I want everyone to be restrained. What I want to say is: the uncertainty of the future is far more than anyone's perception of the future. So we have to always be humble. What you need is reasonable asset diversification to build a solid portfolio." He added, "A 'cautious' gold allocation ratio may be between 10% and 15% of the portfolio. This way a small portion of gold can protect and diversify the portfolio. But most importantly, make sure you don't rely too much on a single asset."

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