In an interview with Tucker Carlson, Bridgewater Associates founder Ray Dalio stated that the United States is currently in a classic debt cycle that began with the establishment of the New Monetary Order in 1945. Dalio explained the mechanism of the debt cycle:
When debt service payments rise relative to income, it squeezes out other spending, just like it does for individuals or companies, except governments can print money.
He pointed out that the current problem in the United States is not only the increasing debt burden, but more importantly, the imbalance between supply and demand. With the establishment of the dollar as the world's reserve currency, the United States is able to sell a large amount of debt, but when the supply of debt exceeds demand, structural problems will arise.
Dalio stated that the United States is currently in the fifth stage of a six-stage cycle, saying, "We are on the verge of collapse, but we haven't crossed that line yet." This statement continues his long-standing argument.
Central banks around the world turn to gold
When discussing threats to the dollar's reserve currency status, Dalio analyzed changes in supply and demand dynamics. He stated, "When demand for a reserve currency is insufficient to meet supply, you see a supply and demand problem. You generate a large supply and demand is insufficient, and all else being equal, long-term interest rates will rise."
More importantly, geopolitical factors play a significant role. Other countries feel insecure about holding dollar-denominated debt primarily for two reasons: sanctions risk and supply and demand issues. Dalio points out, "If you were China, how would you feel about holding US Treasury bonds? You might feel insecure because of sanctions, and you would also worry about supply and demand." This concern is driving central banks to increase their gold reserves as an alternative reserve currency.
The historical lessons of abandoning the gold standard in 1971
Dalio recalled the historic moment on August 15, 1971, when Nixon announced that the United States was abandoning the gold standard. He was interning at the New York Stock Exchange at the time and witnessed this turning point firsthand: "Nixon went on television on Sunday night and said, 'We will not allow paper money to be exchanged for gold. You will not get gold.'"
This mechanism, which has functioned for 55 years since the shift to a fiat currency system in 1971, is now showing signs of fatigue. Dalio stated that whenever faced with a debt crisis, governments tend to print more money and provide more credit. While this may temporarily alleviate the problem, it allows debt to rise again until it crowds out spending and creates supply and demand issues.
Risk assessment of central bank digital currencies (CBDCs)
Regarding the development of central bank digital currencies (CBDCs), Dalio believes they will materialize, but on a small scale. He analyzed several key characteristics of CBDCs, firstly, ease of transaction: "Digital currencies are easy to trade, like money market funds"; secondly, the interest rate issue, with discussions currently underway regarding whether to offer interest.
But CBDCs also bring significant risks. Dalio points out, "They can take your money, they can establish foreign exchange controls, and so on." Especially for international holders, "If you are French and they want sanctions, they can take your money." There are also privacy issues with payments and holdings, as well as the risk that politically unpopular individuals could have their services cut off.
Based on these considerations, Dalio stated that he does not believe central bank digital currencies will develop to a very large scale.
Investment Logic and Allocation Recommendations for Gold
When discussing gold investment, Dalio emphasized an important point: "People focus too much on whether the spot price of gold will go up or down, without considering what percentage of their portfolio should they allocate if they have no opinion on gold?"
He explained the core value of gold: "Gold is a very effective tool for diversifying investments and protecting assets. In very bad times, when the rest of your portfolio is underperforming, gold performs very well." Dalio recommends that individual investors allocate 5-15% of their portfolios to gold, the specific percentage depending on the overall portfolio structure.
Most importantly, Dalio emphasizes that gold is the only asset that is not someone else's liability: "There is nothing else in the world that can serve as the reserve currency you want, except for gold. Gold is the only asset you can own that is not someone else's liability, meaning you don't need to take money from others."
This perspective also holds significant implications for cryptocurrency investors during a period of challenges to the fiat currency system, as Bitcoin shares some of these characteristics. I am not Dalio, so my opinion doesn't count.
The following is the video of Dalio's interview:
