Hovering U.S. authorities debt is reaching some extent the place it can start creating bigger issues, Bridgewater Associates founder Ray Dalio mentioned Friday.

The hedge fund titan warned throughout a CNBC look that the necessity to borrow an increasing number of to cowl deficits will exacerbate the political and social issues the nation is going through.

“Economically robust means financially robust,” Dalio mentioned on “Squawk Field.” “Financially robust means: do you earn greater than you spend? Do you will have revenue assertion as a rustic? And do we have now steadiness sheet?”

The U.S. is $33.7 trillion in debt, a complete that exploded by 45% for the reason that Covid pandemic in early 2020, based on Treasury Division knowledge. Of that complete, $26.7 trillion is owed by the general public. Final 12 months, the federal government rang up a $1.7 trillion deficit because it sought to maintain up the tempo of spending.

Because the debt constructed up and the Federal Reserve raised rates of interest to attempt to tamp down inflation, the federal government spent $659 billion on web curiosity prices in fiscal 2023 to finance the debt.

Dalio mentioned that may be a recipe for hassle.

“The more severe that will get, the extra we’re going to have that long-term downside,” he mentioned. “You may see it within the numbers. It is only a matter of numbers. We’re close to that inflection level.”

Together with the essential funds points, Dalio additionally cautioned that international consumers, who make up about 40% of demand for U.S. Treasurys, have been backing off, making a supply-demand downside.

Information by January point out that international holdings of U.S. authorities debt complete $7.4 trillion, down $253 billion, or 3.3% over the previous 12 months. China particularly has reduce its holdings strongly, pulling again 17% through the interval.

“You wish to hold spending on the identical stage, there may be the necessity to get an increasing number of into debt. The way in which that works, it accelerates,” Dalio mentioned. “We’re on the level of that acceleration, which creates the supply-demand downside. It is made worse by the opposite points that we’re speaking about, the inner political situation, the inner social battle situation.”

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