Bridgewater Associates founder Ray Dalio sees growing public debt and continuing rate hikes as negative factors for the economy and predicts they will cause economic woes in the coming two years.
Dalio says the US government debt is extremely high, which may trigger drastic changes in the financial system. He suggests debts will increase so much that central banks will have to buy them.
"Given these conditions, it appears that interest rates that are high enough (and money and credit that is tight enough) to fight inflation and provide lender-creditors with adequate real returns will be unbearably high for borrower-debtors. This means the system is close to the point where big restructurings will be needed. Of course, which debtors and creditors are affected will vary," Dalio said.
He also stressed that economic patterns tend to repeat, namely enormous debts, conflicts within and between countries as well as environmental and technological changes, like the advent of the Internet and artificial intelligence.
According to the founder of Bridgewater Associates, within the larger cycle, there is a smaller one, determined by economic weakness and high inflation, which precipitate a recession. In his view, after seven consecutive rate increases from the US Federal Reserve, record inflation, and a prolonged debt crisis, this is what is happening now.
