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U.S. Debt Crisis Will Lead to Money Printing Warns Ray Dalio: A Change for Bitcoin to Prevail?

Published September 19, 2023 12:24 PM
Teuta Franjkovic
Published September 19, 2023 12:24 PM

Key Takeaways

  • Billionaire investor Ray Dalio revealed his preference for cash over bonds amid global economic uncertainty.
  • Dalio’s statement highlights the challenges investors face as central banks grapple with inflation control and economic uncertainties.
  • He emphasized that holding cash temporarily is a more favorable option than owning debt instruments
  • He previously admitted to holding ‘a little bit of Bitcoin’ but finds gold a more attractive investment.

As the US take on additional debt, it is likely that the money printers will start up once more, according to billionaire investor Ray Dalio.

In his remarks at the All-In Summit , Dalio predicted that as the Country continues to accrue debt, it will eventually find it difficult to pay back its debts.

Quantitative Easing on the Horizon?

The billionaire claims that a recession could compel the government to re-introduce quantitative easing, a monetary policy that tries to expand the supply of dollars in the financial system. This is because of the Nation’s soaring debt levels.

“What happens is debt rise is relative to incomes. What that means, mechanistically, is that debt service payments rise relative to incomes, and so it squeezes out consumption as the debt compounds. And what happens is there’s a realization that they have to print money. I think you’re going to see in the next downturn another move to print money,” he said .

The US national debt , according to the Treasury Department, is $33.044 trillion.

A “big risk” is also brewing for the United States, according to Dalio. The billionaire observes that if the value of their bonds declines as a result of money creation, holders of US bonds may decide it is appropriate to sell their holdings.

As the US government injects more dollars into the economy, the value of the currency decreases, leading to a drop in the value of US bonds as investors realize their purchasing power erodes.

Dalio claims that the significant risk arises when they decide not to keep those bonds any longer due to supply and demand; when a Nation has a deficit, it must borrow money, which causes it to sell its bonds.

Who are the buyers of the bonds? Why do they buy? The buyers of bonds buy because there’s an attractive return. Not only do you have those amounts of bonds, but when they start to realize that [they’re] not getting good returns on those bonds, they can sell those bonds,” he commented .

Dalio Owns ‘A Little Bit of Bitcoin’

Despite owning a “little bit” of Bitcoin, billionaire and founder of Bridgewater Associates previously said  he “doesn’t understand why people are more inclined to go to Bitcoin than gold.”

“Cryptocurrency or Bitcoin doesn’t move in a reliable way related to almost anything,” remarked  Dalio. It moves up and down due to these and those movements, “and unlike gold, let’s say.”

He has previously stated that Bitcoin is similar to gold, but that “gold is a well-established, blue-chip alternative to fiat money,” and despite recent increases in the token, his opinions haven’t really altered.

“With cryptocurrency, it’s simple to keep track of owners and transactions. Not like it’s from the government…It doesn’t move in a manner that’s typical of any of the ecosystems, according to Dalio. It is a modest asset class. Although we talk a lot more about it, Microsoft MSFT, -0.35% is just one stock among several, and its size is about equivalent to that of Microsoft.

Bitcoin’s Volatility Follows Release of Inflation Data

The release of crucial U.S. inflation statistics, which may indicate that the Federal Reserve will keep interest rates high for longer, put additional pressure on rate-sensitive digital assets last week, causing Bitcoin and other cryptocurrencies to tremble.

After the announcement  of the U.S. consumer-price index (CPI) for August, the price of Bitcoin  first fell to almost $26,000 but soon jumped from $26,100 to $27,182 at the time of writing.

In August, the CPI accelerated to 3.7% annually, exceeding economists’ forecasts of 3.6% growth.

Cryptocurrencies, like the Dow Jones and S&P 500, responded to the CPI data, given its significance in shaping interest rate expectations. While the current consensus expects the Federal Reserve to keep borrowing costs steady this month, uncertainty remains regarding their actions in November.

Eyes on Inflation

In the meantime, stronger-than-anticipated inflation figures will only increase wagers that the Fed will remain hawkish, resulting in rates staying higher for longer.

Higher rates are essentially bad for cryptocurrencies because they reduce investor incentives to participate in riskier bets like digital assets by increasing the yields of risk-free assets like cash or Treasuries.

Rates might put pressure on cryptocurrencies if they reach a new generational peak in November and continue to rise for longer than previously anticipated beyond 2024.

Ether, the second-largest cryptocurrency behind Bitcoin, fell by less than 1% to $1,646.

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