U.S. debt reaches $36.7T, while Treasury projects the U.S. could issue $12T in new bonds next year to service the debt.
Founder of Bridgewater Associates, Ray Dalio, urged investors to allocate 15% of their portfolio into risk-off assets such as Bitcoin and gold. He argued that the initiative will help shield investors from America’s debt crisis, which has risen above $37.7 trillion.
The hedge fund manager also said the 15% portfolio allocation into Bitcoin and gold will help investors optimize the best return-to-risk-ratio in the wake of dollar devaluation. Dalio added that he already has a part of his portfolio in the digital asset, but not as much.
Dalio warns of U.S.’s mounting macroeconomic risks
Dalio stated during an appearance on the Master Investor podcast on Sunday that he prefers gold to Bitcoin. He also maintained that the 15% allocation was his suggestion, and it was up to the investor to decide what best suited their portfolio.
The hedge fund manager’s 15% proposition is a bit higher than the 1% to 2% Bitcoin allocation he recommended in January 2022. At the time, he argued that gold and BTC were fit as an inflation hedge.
“Gold is a much preferable diversifier to Bitcoin, as it tends to increase in price when risk aversion is high. It can be a useful insurance policy for a portfolio, but importantly held alongside shares and bonds to achieve a balance of risk and reward.”
-Laith Khalaf, Head of Investment Analysis at AJ Bell.
The American billionaire acknowledged that the current U.S debt problem and currency devaluation call for investors to consider other ways to diversify their portfolio. Dalio believes allocating 15% into store-of-value assets like gold and Bitcoin could help investors in such murky times.
At the time of publication, U.S. Treasury data show that U.S. debt has surpassed $36.7 trillion. Dalio also believes the U.S. government will likely need to issue another $12 trillion worth of bonds over the next year to service its mounting debt.
On Monday, the U.S. Treasury released a report that revealed the government could add another $1 trillion in debt in the third quarter. The projection surpassed the previous estimates of $453 billion, which were largely driven by weaker cash flows and lower reserves.
The Treasury also revealed that the government could add another $590 billion in debt in Q4. The report noted that the U.S. government will continue to borrow due to its reliance on debt to fund budget expenses amid rising doubts about its future fiscal path.
Dalio said that the U.S. is spending 40% more than it takes in, and that it can’t cut its spending. He also noted that the government has accumulated a debt that’s six times the amount of money it takes in, adding that its $1 trillion in interest payments is also half its budget deficit.
The hedge fund manager argued that the Federal Reserve will need to print more money to service its debt. He believes that the situation for more cash could spook the markets and could involve another round of quantitative easing.
Dalio warns the UK is in a debt loop
Dalio also pointed out that other Western countries, such as the UK, are also stuck in a debt loop. The country’s debt as a percentage of GDP rose to 101%, as its long-term borrowing costs also spiked higher.
The hedge fund manager argued that the debt situation has given Chancellor Rachel Reeves little room to borrow more to fund spending. He also believes the debt crisis is affecting capital flows and has also made Reeves focus more on raising taxes instead.
Dalio said the UK faces financial deterioration, which has caused investors to migrate worldwide. He urged the government to lower its deficit to about 3% of GDP from its current 5.1% of GDP by spending cuts and taxation.
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