Source: All-In Podcast
Compiled by: Felix, PANews
This marks Bridgewater founder Ray Dalio's third appearance on the All-In podcast; the last time was a few days after President Trump's inauguration. Dalio pointed out then that if the U.S. could reduce its deficit to about 3% of GDP, it could experience a smoother transition. Currently, the Congressional Budget Office (CBO) estimates the deficit will be around 6% of GDP in 2026.
In this dialogue, Dalio pointed out five major forces influencing the future of the United States: debt and currency, wealth and value disparities, great power conflict, technological change, and natural disasters. Gold, as the most reliable currency, is recommended for a 5%-15% allocation in a portfolio; while Bitcoin, lacking privacy and not favored by central banks, still has a long way to go. AI is "devouring everything," and may even devour itself; only a very small percentage of AI companies will survive.
The following is a highlight of the podcast.
Five forces that will shape America's future
Host: Looking back at the government's policies, Parliament's actions, and the economy over the past year: Are we on the right track now? Compared to a year ago, is our path fundamentally different? Or are we moving too slowly?
Dalio: I've studied historical cycles over the past 500 years and found five intertwined forces that determine the answer to your question. The first is debt and currency issues; the second is domestic disparities—wealth and values disparities— which create irreconcilable differences between the left and right, affecting taxation, democracy, and the functioning of everything; the third is international great power conflict —the classic pattern of a rising great power challenging existing powers and altering the international world order. The fourth is technological change , which has occurred in all these cycles. The fifth is natural disasters , such as droughts, floods, and pandemics.
All monetary orders collapse for the same reasons, and all political and international orders are always changing. The United States is relatively stable, with a 250-year history, but even these are subject to change. There was a civil war. But on an international level, they are always changing. All orders are changing . The international geopolitical order is shifting from a multilateral world order to a unilateral world order, and technology is certainly changing as well.
A nation's economy is essentially the same as a company's or an individual's economy, except the government has the privilege of printing money. You can think of it as a company, or even your own. Basically, there are projected expenditures of around $7 trillion, revenues of around $5 trillion, a fiscal deficit as high as 40%, and total debt six times the revenue. The problem with the debt cycle is almost like the circulatory system in the body. Capital markets bring credit to different parts of the economy, and if that credit is used for productive purposes and generates revenue to pay debt interest, it's healthy. But the reality is that if debt interest grows too fast relative to revenue, it's like plaque building up in a blood vessel, eventually crowding out other spending.
Currently, half of the US$2 trillion deficit is used to pay interest, and there is also $9 trillion in maturing debt that needs to be rolled over. Due to the enormous scale of the debt, the excessive proportion of dollar debt in investment portfolios, and potential geopolitical conflicts, the risks for foreign buyers, who account for one-third of the US Treasury bond market, in purchasing US Treasury bonds are constantly increasing.
Host: You pointed out this problem earlier. Your diagnosis was that if a 3% deficit level could be achieved, the impact would be mitigated, but that didn't happen. Last year, Musk's Department of Government Efficiency (DOGE) aimed to drastically cut government spending and eliminate fraud and waste. Did DOGE fail because the actions taken were flawed, or because at this stage of the cycle, the system itself was no longer changeable?
Dalio: Trying to quickly make an inefficient government efficient is very difficult because it sparks huge social controversy. At this stage of the cycle, there are indeed some structural difficulties.
Host: There's another major news story recently: there may be widespread public funds fraud in Minnesota, including some non-existent daycare centers. Similar news reports are emerging across the country, exposing the actual misuse of federal spending. Do you think this is a symptom of this phase? How do you think it relates to the issue we're discussing?
Dalio: This is both a cyclical issue and a problem of mismanagement. Large and complex government agencies (such as DMVs) are inherently extremely inefficient and difficult to manage properly.
Currency is essentially debt; therefore, allocating 5%-15% to gold is recommended.
Host: Since our last interview, gold has surged from $2,900 to $5,200 per ounce over the past year. What changes have occurred in gold over the past year? Is the market realizing that we are in the cyclical phase you have been emphasizing for years? How do you view the movement of gold, and how does it relate to the market's perception of the phase we are in?
Dalio: This is the effect of the larger cycle. Gold is not only a precious metal for speculation, but it is also the most mature form of currency and the second largest reserve currency held by central banks worldwide. Due to economic, supply and demand, and geopolitical reasons, central banks and individuals are actively buying gold as an alternative currency.
The question is, what is money? Mechanistically, money is debt. If you hold money, you are actually holding a debt instrument. If you hold a debt instrument, all you get is a promise from someone that they will give you money. And when central banks are burdened with too much debt, their only power is to print money. In contrast, gold is a physically limited asset that cannot be printed at will, does not depend on the promises of others, and can be transferred globally.
It's important to distinguish between wealth and money. Wealth is tangible. It exists in buildings, companies, and so on, but you can't directly spend wealth. When you want to consume, you must first sell it. Then you get money that you can spend. Right now, we have too much wealth relative to money. The question is, what is money? When you try to convert wealth into cash, there's the risk that they'll print more money, because that's what they've been doing ever since we had fiat currency.
Even if you don't know the price movement of gold and have no opinion on it, considering the interaction between gold and other assets, one should still have 5% to 15% of their portfolio in gold. In other words, when the market is volatile, gold performs well while other assets underperform, which can help diversify risk. Generally, due to this correlation, optimizing the other assets in a portfolio will yield similar results. I'm not advocating for everyone to buy gold, but I want to say what is safe. If you don't have a clear opinion, then gold is safe in the range of 5% to 15%.
Bitcoin has its own characteristics, and as a currency, it is not as good as gold.
Host: Why is Bitcoin behaving differently from gold? Since our last conversation, gold prices have risen by 80%, while Bitcoin has fallen by 25%. What are your thoughts on the current state of Bitcoin? Why hasn't it become a safe-haven asset as many expected?
Dalio: Bitcoin has some important characteristics , such as who its holders are and why they buy and sell it. Bitcoin lacks privacy; any transaction can be monitored and even indirectly controlled . Central banks do not buy or hold Bitcoin. Therefore, Bitcoin is held not only by individuals but also by institutions, etc., but most central banks are unwilling to hold it . These are some of the characteristics of Bitcoin.
There are some questions or concerns about the development of new technologies such as quantum computing . Could problems arise in this area? Furthermore, who owns Bitcoin, and what other assets are in their portfolios? Bitcoin tends to have a high correlation with tech stocks . Therefore , from an ownership perspective, supply and demand will be affected . The Bitcoin market is relatively small and relatively controllable, and it still has a long way to go. I think Bitcoin receives a lot of attention, but as a currency, it is small compared to gold.
Host: What about silver? Silver has also risen sharply over the past year. Is it a derivative of gold? Are people actually speculating on the aftershocks of rising gold prices?
Dalio: Silver is a residual commodity in its production process. Its supply is difficult to increase, and historically, pure silver, like the pound sterling, has been considered a form of currency. However, it has also gradually developed a speculative aspect. Therefore, people are keen to invest in silver because it has always been a hot commodity.
It is difficult to manage the overall economy with a unified fiscal and monetary policy.
Host: What are your views on the current interest rate situation and the actions taken by the Federal Reserve over the past year? How have these actions helped mitigate the impact of the current economic cycle phase?
Dalio: Because we have a huge debt burden, especially federal debt, interest rates are one of the main considerations. The other three factors are taxes, spending, and debt interest rates. But you can't artificially lower interest rates drastically because one person's debt might be another person's asset. Too low interest rates will stimulate borrowing and fuel bubbles, while too high rates will severely squeeze debtors. When you have a lot of debt assets and liabilities, this balance becomes very difficult.
The current situation is more complex because of the so-called "K-shaped economy." In other words, there are bubble elements in the economy; for example, people are discussing who will become the first trillionaire—the top 1% of the population. At the same time, another part of the economy faces enormous challenges. For instance, 60% of Americans have a reading level below sixth grade. Getting them to increase productivity, especially with AI potentially replacing them, is extremely difficult. In other words, it's a problem when there are so many debts, assets, and liabilities, and such a vast disparity in living conditions between the top 1% and the bottom 60%. Therefore, attempting to manage the entire economy with uniform monetary and fiscal policies is exceptionally difficult.
Host: Over the past year, numerous reports have indicated that many global central banks have stopped buying US Treasury bonds and instead purchased gold. Does this mean the Federal Reserve will have to resume buying Treasury bonds and expand its balance sheet? Given the current state of global markets, is it inevitable that we will see the Federal Reserve expand its balance sheet again in this cycle?
Dalio: I think this could happen in the future. Currently, shortening debt maturities is one way to deal with this situation. Of course, this increases the risk of debt rollover.
Host: Data from the past year shows that the number of federal government employees has decreased by 317,000, representing about 14% of the total federal government workforce. As this administration scales back some agencies and reduces their staff, what will happen to these employees? Will they move to the private sector and boost productivity, or will they be absorbed into other government agencies to do work that doesn't actually contribute to economic growth?
Dalio: I haven't studied those numbers, so I can't give a full answer. But the government is very inefficient. Other governments might handle things better, like education. The best investment is in education. But where these people go is the question anyway. This system, or the capitalist system, in a sense, has only one redeeming quality: it can't survive if no one is willing to invest or if it can't make a profit. So I think wherever it goes, wherever these people go, it's filled with inefficient people and inefficient institutions.
Three things that successful countries are all about: AI is "devouring everything"
Host: Is the current economic growth in the United States insufficient to drive productivity growth, thereby giving more people the opportunity to increase their income, wealth, and improve their lives? Is this the fundamental problem we face today? Or do you believe that people lack the skills or education needed for productivity, and therefore the system itself is failing them?
Dalio: To succeed, you basically need to do three things. First, educate your children well , equipping them with productivity and civility, enabling them to interact with others in a civilized manner. Second, provide an orderly and civilized environment for competition and cooperation . Third, stay away from war. Avoid civil war and international war. Do these three things right, and you will have a successful nation.
However, the United States is currently in the fifth phase of its historical cycle, rife with irreconcilable differences, a vast wealth gap, and mob-like disorder. When people place their own ideals above the system, the system is in crisis. The United States now resembles the late Roman Republic, desperately needing a strong leader to quell the infighting and compel people to focus collectively on increasing productivity.
When we examine the AI bubble, many people buy stocks believing they are betting on the technology. This is not the case. There is a huge difference between how companies behave and how technology behaves , and often many companies don't survive in their early stages; only a small percentage survive, but the technology continues to evolve. We saw this in the tech bubble of 2000, and also in the late 1920s. Technology will continue to evolve, but companies may not. This has profound implications.
In my view, AI seems to be devouring everything, and perhaps even itself. It may not generate enough profit. We can't just look at this from a domestic perspective. We also need to look at what's happening in China. There's a difference in philosophy between the two countries: the US system is primarily profit-driven. China may consider profit secondary. To achieve the best results, profit isn't necessarily required. They might make AI as free and open-source as electricity. This would lead to higher usage and productivity gains; while we would have to pay for it. We're in the same world, how can we compete? Their technology is almost as good as ours. What if they provide free, open-source technology? This is also a systemic risk of AI. There are indeed many unknowns.
