Ray Dalio Warns Moody’s Credit score Downgrade Underestimates US Debt Dangers

Billionaire investor Ray Dalio thinks Moody’s current downgrade of the US sovereign credit standing would not seize the hazard of the federal authorities merely printing money to cowl its payments.

“It’s best to know that credit score rankings understate credit score dangers as a result of they solely price the danger of the federal government not paying its debt,” Dalio, the founding father of Bridgewater Associates, warned mentioned on X. “They do not embody the larger threat that the nations in debt will print cash to pay their money owed thus inflicting holders of the bonds to endure losses from the decreased worth of the cash they’re getting.”

“For many who care in regards to the worth of their cash, the dangers for US authorities debt are larger than the score companies are conveying,” Dalio added.

Dalio’s feedback got here after Moody’s, the worldwide monetary providers firm, downgraded the US credit score from Aaa to Aa1 on Friday, citing rising deficits and surging curiosity funds. That makes Moody’s the final of the three main credit score companies to bump America’s credit score off the best score. S&P World Rankings downgraded the US again in 2011, and Fitch Rankings adopted go well with in 2023.

In response to the downgrade, shares slipped on Monday whereas Treasury yields spiked. The 30-year bond yield jumped 4.995%, and the 10-year bond yield rose to 4.521%.

Including to investor considerations, economists are sounding the alarm on a tax lower invoice proposed by Republicans that would come to go given the slim GOP majorities in each the Home and the Senate.

The invoice proposes tax breaks for the wealthiest Individuals via the next property tax exemption, curiosity tax breaks for personal fairness, and a $150 billion increase in protection spending. It additionally plans to extend the kid tax credit score by $500 and get rid of taxes on suggestions and time beyond regulation pay.

Regardless of the invoice additionally proposing spending cuts to Medicaid and SNAP and to hike taxes for immigrants, the Price range Lab at Yale, a nonpartisan coverage analysis middle, says that the GOP invoice would worsen America’s debt.

“The invoice as at the moment proposed would considerably add to the deficit, even when accounting for potential tariff income,” authors of the report wrote, “If we account for the probability that these provisions would turn into everlasting, on the finish of 30 years the debt-to-GDP ratio could be over 180%, even assuming substantial income from tariffs.”

Based on the report, Sudan and Japan are the one two nations with a debt-to-GDP ratio over 180%.

“Assuming short-term provisions expire, the invoice’s baseline value of $3.4 trillion would make it the biggest spending package deal in US historical past,” the report added.

In a uncommon Sunday evening vote on Could 18, the GOP tax lower invoice narrowly handed the Home Price range Committee, which days earlier than rejected the invoice. The invoice now heads to the Home for a vote this week.

A spokesperson for Dalio didn’t instantly reply to a request for remark.