Ray Dalio
@RayDalio
Now that the budget bill has passed Congress, we can see what the projections look like for deficits, government debt, and debt service expenses. In brief, the bill is expected to lead to spending of about $7 trillion a year with inflows of about $5 trillion a year, so the debt, which is now about 6x of the money taken in, 100 percent of GDP, and about $230,000 per American family, will rise over ten years to about 7.5x the money taken in, 130 percent of GDP, and $425,000 per family. That will increase interest and principal payments on the debt from about $10 trillion ($1 trillion in interest, $9 trillion in principal) to about $18 trillion (of which $2 trillion is interest payments), which will lead to either a big squeezing out (and cutting off) of spending and/or unimaginable tax increases, or a lot of printing and devaluing of money and pushing interest rates to unattractively low levels. This printing and devaluing is not good for those holding bonds as a storehold of wealth, and what’s bad for bonds and US credit markets is bad for everyone because the US Treasury market is the backbone of all capital markets, which are the backbones of our economic and social conditions. Unless this path is soon rectified to bring the budget deficit from roughly 7% of GDP to about 3% by making adjustments to spending, taxes, and interest rates, big, painful disruptions will likely occur.
Ray Dalio
Happy 4th of July! We Americans have a lot to celebrate and reflect on—most importantly on what has bound us together and driven our evolution from that day of independence until now.
When I think about the 4th of July, besides savoring the BBQ and fireworks with my family and friends, I think about the great men and principles that created the Declaration of Independence, Articles of Confederation, and the Constitution, which underpin our uniquely practical, bottom-up system of government in which the people rule over the rulers (in this republic form of democracy) and both freedom and order co-exist (because of a respect for the system). I think of the whole story of America from its 4th of July beginning until now, including hard times like the Civil War, the World Wars, and the Depression. Probably most importantly, this system was underpinned by America's openness to immigrants with good character who came here because it was a welcoming country with unique opportunities and who stayed to build the country via the largely equal opportunities that it offered. These opportunities improved with time so that the poor as well as the rich and people of all nationalities and persuasions could be productive and achieve success and America became “The Land of Opportunity.” Underpinning all this was the creation and implementation of America’s judicial system that largely produced justice, its capital markets system that funded creative, hard-working individuals with unique ideas to come up with unique products, and its uniquely productive economy that provided the majority of people with both employment and great products that raised living standards.
I also think about how the beliefs and principles that are embodied in these systems and actions allowed people to live whatever life they wanted to live regardless of how others thought they should live, so that people could live their lives practically any way they wanted to as long as they didn’t hurt others. And I think about how this all was made possible through the Constitutionally mandated system in which state and local governments could create very different environments that allowed people to find and move to those places that best suited them.
I think about all this and a lot more that I cherish that has defined America from its beginning until now.
While thinking a lot about and cherishing these unique American qualities, I also worry that we are losing them. When I think of each one of the qualities that I mentioned, I see all of them as being much weaker than at any time in my life. I wonder if we are still a Union of people who are bound together by a love of these principles or any other great principles. It appears to me that America is now fragmented to a degree that I haven't seen in my lifetime because we don't have clear, deeply held shared principles, and I worry that we are at risk of losing our most fundamental underpinnings that presumably we are meant to reflect on for this 4th of July. For example, isn't it interesting that on this 4th of July there isn't more attention being paid to the fact that a recent poll (taken by PBS/NPR/Marist) showed that 76% of Americans now say they see a serious threat to the future of democracy?
To me, it would be great if this incongruity was examined and resolved. Maybe, as some people believe, another great quality of the American system is that it has unique abilities to have such fights and divisions, go through difficult times, and come out with learnings and adaptations that make it stronger. If that’s the case, we should be optimistic that we will find ways to deal with and get past our challenges to be better than ever. While I think there is a lot of truth to that, having studied what drives the Big Cycles of rises and declines of nations, I worry about how the indicators are tracking the typical path.
Anyway, while I can't help but think about these things, I'm now going to leave thinking about them to another day and dive into having a blast with my friends and family, celebrating this great 4th of July with all its festivities. I hope you'll do the same. Have a great 4th of July!!!
