(qlmbusinessnews.com . Sat 5th Jul, 2025) London, UK —
US Debt Crisis Looms: Ray Dalio Predicts $10 Trillion Annual Loan Costs
Donald Trump this week saw his proudly proclaimed “Big Beautiful Budget Bill” clear Congress, reigniting longstanding concerns about the US's propensity for significant borrowing from international sources.
The budget, which envisions substantial tax cuts, is poised to swell the US’s already staggering debt of $37 trillion (£27 trillion) by an additional $3 trillion (£2.2 trillion). Among its vocal detractors is Trump’s erstwhile ally, Elon Musk, who has denounced the bill as a “disgusting abomination”.
This escalating debt is prompting questions about the global community's ongoing willingness to finance Uncle Sam’s expenditures.
Recent weeks have seen a depreciation in the dollar's value alongside a surge in the interest demanded by investors to lend money to the US, underscoring the rising skepticism regarding America's persistent borrowing.
The US finds itself in a position where it must borrow to bridge the gap between its revenues and expenditures. Since the year’s start, the dollar has seen a 10% depreciation against the pound and a 15% fall against the euro.
While the US's borrowing costs have broadly remained stable, the yield curve — the difference in interest rates between long-term and short-term loans — has steepened, indicating growing concerns over the sustainability of the nation's debt levels.
Interestingly, the US has been more cautious than both the EU and the UK in reducing interest rates, an approach that theoretically should bolster the dollar's strength due to the higher returns on bank deposits it offers to investors.
Ray Dalio, the founder of the world's largest hedge fund, sees the US at a crucial juncture with its borrowing strategies. He forecasts that the nation will imminently be disbursing $10 trillion annually on loan repayments and interest, stating, “I am confident that the [US] government’s financial health is reaching a critical point…unless addressed now, the accumulating debts will become unmanageable, leading to severe disruption.”
So, what might this disruption entail? Foremost, it could mean drastic governmental spending cuts, substantial tax hikes, or a combination of both. Dalio proposes slashing the budget deficit from its current 6% to 3% to avoid future crises. However, Trump’s recent budget cuts taxes more than it curtails spending, indicating a contrary political direction.
Alternatively, as seen during the 2008 financial crisis, the US might opt to print additional money to purchase government debt, potentially fuelling inflation and inequality. The most dire scenario would involve a blatant US default on its obligations, a move that would dwarf the 2008 crisis in severity.
Presently, the risk of such outcomes remains low, though not for particularly reassuring reasons. Despite a global effort to diversify away from the dollar, viable alternatives are scant. Mohamed El-Erian, a prominent economist, likened the dollar to the “cleanest dirty shirt” – an unavoidable choice despite its flaws.
Even at the highest echelons, the future of the dollar and US government bonds is a subject of serious discussion. The Governor of the Bank of England recently acknowledged the pressing concerns regarding US debt and the dollar’s status to the Reporters, revealing that these matters are prominently on US Treasury Secretary Bessent's agenda.
While the sheer scale of US debt is mind-boggling, assessing it against the nation's income, approximately $25 trillion annually, provides a different perspective. Although the US’s debt-to-income ratio is high, it remains lower than that of Japan or Italy, buoyed by an economy renowned for its innovation and wealth generation.
This contemplation of the US financial state echoes the sentiments of William F. Rickenbacker’s 1968 work “Death of the Dollar”, where he cautioned against taking the dollar’s dominance for granted. While Rickenbacker's predictions have not materialized, and the dollar still reigns, its unassailable position is far from guaranteed.
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