Ray Dalio warns world is on cusp of debt crisis

US needs to slash its deficit to 3% of GDP, investment guru tells the World Governments Summit

Speaking at the World Governments Summit in Dubai with Tucker Carlson, Ray Dalio, left, said there is now a big global debt issue. Antonie Robertson/The National

The world is on the cusp of an unprecedented debt crisis – that is the warning of American investment guru Ray Dalio.

Speaking at the World Governments Summit in Dubai in a conversation with Tucker Carlson, Mr Dalio said there is now a big global debt issue.

Mr Dalio, the founder of hedge fund giant Bridgewater Associates, said he had forecast this based on historical trends which revolve around five major cycles.

The first is money debt markets. The others are internal order or civil wars, natural disasters, technology and, finally, great world power conflict such as with the US and China.

“There is a supply and demand situation”, said Mr Dalio. “The way the debt cycle works is think of credit, and credit systems as being like a circulatory system. Credit brings buying power, brings nutrients to all of the system.” Debt however, is like plaque in the system, if it accumulates the system “begins to have a problem”.

“In the US, about a trillion dollars a year now goes to pay interest rates, and over the next year, we're going to have over $9 trillion of debt that we have to pay back or roll forward,” Mr Dalio said during the summit session.

Elon Musk speaks through video link with Omar Al Olama, UAE Minister of State for AI, Digital Economy and Remote Work Applications. Antonie Robertson / The National

Former British prime minister Boris Johnson speaks to Richard Quest of CNN on the second day of the World Governments Summit in Dubai. Antonie Robertson / The National

Emad El Din Adeeb, of Sky News Arabia, left, with Ahmed Aboul Gheit, Secretary General of the Arab League, and Jasem Al Budaiwi, Secretary General of the Gulf Co-operation Council, right, at the summit. Antonie Robertson / The National

Dr Kamal Kharazi, head of Iran's Strategic Council on Foreign Relations. Antonie Robertson/The National

Brian Niccol, right, chief executive of Starbucks, speaks to John Defterios. Antonie Robertson / The National

Former UK prime minister Tony Blair. Antonie Robertson / The National

Visitors attending day two of the summit in Dubai. Antonie Robertson / The National

Makhtar Diop, managing director of the International Finance Corporation. Chris Whiteoak / The National

Sheikh Khaled bin Mohamed, Crown Prince of Abu Dhabi and Chairman of Abu Dhabi Executive Council, right, and Sheikh Hamdan bin Mohammed, Crown Prince of Dubai, Deputy Prime Minister, Minister of Defence and Chairman of the Dubai Executive Council, attend the World Governments Summit. Wam

Sheikh Mohammed bin Rashid, Vice President and Ruler of Dubai, meets Shehbaz Sharif, Prime Minister of Pakistan, on the first day of the summit. Wam

Sheikh Mansour bin Zayed, Vice President, Deputy Prime Minister and Chairman of the Presidential Court, presents the GovTech Prize to a winner at the summit. Abdulla Al Neyadi / UAE Presidential Court

Sheikh Mansour meets Adylbek Kasymaliev, chairman of the Cabinet of Ministers of Kyrgyzstan. Hassan Bargash Al Menhali / UAE Presidential Court

Sheikh Abdullah bin Zayed, Deputy Prime Minister and Minister of Foreign Affairs, with Bui Thanh Son, Vietnam's Deputy Prime Minister and Foreign Minister. Wam

Kristalina Georgieva, managing director of the International Monetary Fund, alongside Richard Quest of CNN. Chris Whiteoak / The National

Sheikh Saif bin Zayed, Deputy Prime Minister and Minister of Interior, hands over a Global Government Excellence Award at the event at Madinat Jumeirah. Chris Whiteoak / The National

Sheikh Ahmad Abdullah Al Ahmad Al Sabah, Prime Minister of Kuwait, addresses the summit. Chris Whiteoak / The National

Jason Miller, senior adviser to US President Donald Trump. Chris Whiteoak / The National

Andrzej Duda, President of Poland. Chris Whiteoak / The National

Mohammed Al Shehhi, Secretary General of the UAE Media Council. Chris Whiteoak / The National

Omar Al Olama, Minister of State for AI, Digital Economy and Remote Work Application, and Robin Li, co-founder and chief executive of Baidu, discussing emerging technologies. Mr Al Olama is also vice chairman of the World Governments Summit. Chris Whiteoak / The National

Mohammad Al Gergawi, Minister of Cabinet Affairs and chairman of the World Governments Summit, speaks at the Madinat Jumeirah complex. Chris Whiteoak / The National

A Dubai Railbus vehicle on display. Testing of the sustainable transport project is expected to be complete in two years. Chris Whiteoak / The National

US needs to slash debt

Keeping his lens on the US, Mr Dalio said that the country needs to slash its deficit. He said the United States will run a deficit of about 7.5 per cent of GDP if the Trump tax cuts are continued as planned. This, Mr Dalio said needs to be reduced to 3 per cent.

Tech entrepreneur Elon Musk has been on a mission, backed by US President Donald Trump, to stamp out overspending through the Department of Government Efficiency (Doge). Is this enough to bring the economy and spending back into line?

“You have to take sharp pencils and you also have to think: what are you going to break along the way? Because you don't want to break too many things along the way, but you've got to do it fast.” said Mr Dalio.

But he believes it is possible to bring the deficit down to 3 per cent. “There's taxes, there's spending, cut the spending in various ways, cut it down as far as you can, and that becomes tolerable.”

Video: Ray Dalio speaks to The National

Ray Dalio on economic forces, division and the future

26:56