(Kitco News) - Billionaire investor Ray Dalio continues to sound the alarm over the health of the global economy, citing unsustainable government deficit spending. He is advising investors to allocate around 15% of their portfolios to alternative currencies such as gold or Bitcoin.
The founder of Bridgewater Associates shared his dire economic outlook during an appearance on CNBC’s Master Investor Podcast on Sunday. Focusing on the U.S., he pointed out that while the government collects approximately $5 trillion in income, it spends $7 trillion.
“It’s spending 40% more than it takes in, and it can’t really cut spending because so much of it is fixed. It’s accumulated a debt that’s six times its income…,” he said. “The credit system is like a circulatory system that brings nutrients—buying power—to different parts of the economy. If that buying power is used to generate income, then the income services the debt, and it’s a healthy system. But when debts, debt service payments, and interest rates rise, they begin to crowd out other spending—like plaque in the circulatory system—creating a problem akin to an economic heart attack.”
His comments come as U.S. government debt has surpassed $37 trillion.
Dalio noted that due to its persistent deficit spending, the U.S. government will likely need to issue nearly $12 trillion in Treasuries next year to service its debt.
“We are at the point of no return,” Dalio warned, adding that the only remaining option is for the government to borrow more and rely on central banks to print money. He also cautioned investors that indicators such as the emergence of capital controls are beginning to flash warning signs.
Although Dalio focused on the U.S., he emphasized that all Western-led economies face similar challenges.
“Just like in the ’70s or the ’30s, they will all tend to go down together. We’ll pay attention to their relative movements, but they will all decline in value—relative not to fiat currencies, but to hard currencies. And that hard currency is gold,” he said.
Dalio pointed out that gold has already become the world’s second-largest reserve currency, surpassing the euro earlier this year.
In addition to gold, he identified Bitcoin as an attractive monetary asset. However, he noted that it is still not in the same category as gold, primarily because he does not expect central banks to adopt it as an official reserve asset.
“I can't say exactly how effective it is as a form of money, but it’s being perceived by many as an alternative,” he said.
Regardless of the debate between Bitcoin and gold, Dalio emphasized that the key objective is to own assets that protect against broad-based currency depreciation.
He added that a neutrally balanced portfolio should include about 15% exposure to gold or Bitcoin.
“In my own portfolio, I hold gold and a small amount of Bitcoin,” he said. “I strongly prefer gold to Bitcoin—but that’s up to the individual. The real issue is the devaluation of money.”
