Ray Dalio, the founder of the world’s largest hedge fund firm, Bridgewater Associates, has called for a reduction in the US budget deficit to help stabilise the bond market and lower interest rates, according to a report by CNBC.
Speaking on CNBC’s Squawk Box from the World Economic Forum in Davos, Switzerland, Dalio, emphasised the urgency of addressing the nation’s fiscal imbalance. He noted that the current deficit stands at 7.5% of US gross domestic product (GDP). Reducing this figure to 3% could significantly ease the bond market’s supply-demand imbalance, he said.
“It’s almost a black-and-white situation,” Dalio explained. “All those bonds have to be sold … there’s a tremendous supply. It’s happened many times before, so we have to stabilise that, and we can do it.”
The growing US deficit, driven by rising financing costs, increased spending, and declining tax revenues, has contributed to a national debt exceeding $36tn. In 2024, the government spent more on interest payments than on any expenditure apart from Social Security, defence, and healthcare.
Dalio highlighted the importance of bipartisan cooperation to address the issue, suggesting the deficit could be reduced through higher taxes, lower spending, or a combination of both.
“That’s what I call the 3% solution,” he said. “We have so much debt that the interest costs on the debt are more important than spending and taxes. Our problem isn’t the deficit; our problem is the politics, the fragmented politics.”
