Ray Dalio on the Coming Crisis in US Debt

Almost whichever way you measure it, the US has a lot of debt. And, with the Trump administration recently proposing a budget that would see US debt levels swell even further, it doesn't look like this issue is going away any time soon. In this episode, we speak with Ray Dalio, the billionaire founder of the hedge fund Bridgewater Associates and the author of the new book, How Countries Go Broke. We talk about how he thinks about debt cycles, the catalyst for when high levels of debt become an immediate problem, what a debt crisis actually looks like, and what the US needs to do to avoid a "heart attack" debt crisis within the next three years. We also speak about what investors should do in these scenarios, including Ray's thoughts on things like Bitcoin and gold. And, of course, we also speak about his role in helping create the Chicken McNugget. Read more:The Stories We Tell Ourselves About Bonds‘Mar-a-Lago Accord’ Chatter Is Getting Wall Street’s AttentionOdd Lots is coming to Washington, DC! Get your tickets here. See omnystudio.com/listener for privacy information.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

  Finance is increasingly being built on digital rails. But as the adoption of virtual assets, tokenization and stable coins grows, can regulation not only keep pace but help accelerate it? Find out more later in the podcast.

• 0:16Speaker 01

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting

• 0:58Speaker 01

  and hiring practices, but according to recruiters, advisors and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at chatgpt.com.

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• 1:57Tracy Alloway?

  Hello and welcome to another episode of the All Thoughts Podcast. I'm Tracy Alloway.

• 2:01Joe Weisenthal?

  And I'm Joe Weisenthal.

• 2:03Tracy Alloway?

  Joe, have you ever seen those visuals of a trillion dollars where it's like, here's 100, here's a hundred dollar bill, here's a stack of $10,000, here's a million dollars, and eventually you get to one trillion and it's just all these pallets of notes that are worth a billion each and they're like covering the size of a football field or something and they're double stacked.

• 2:26Joe Weisenthal?

  I love that. I never really know what they mean. It's like, oh, this is as big as the Statue of Liberty or something like that. And it's like, okay, like, I mean, that is objectively big. I get, is that a good way to visualize money in terms of what it means? I don't know. But yes, money, especially use small denomination bills can really pile up before you get to real value.

• 2:49Tracy Alloway?

  Well, okay, speaking of big numbers, the US budget deficit was about 1.8 trillion in 2024. So if we stick with the visual, almost, almost two football fields of double stacked pallets of $1 billion each. So quite a lot. But I think this illustrates-

• 3:07Joe Weisenthal?

  You know, we saw those stacked pallets.

• 3:09Tracy Alloway?

  I know, but we didn't see a trillion dollars. We saw billions. And I think this kind of illustrates one of the really difficult things about finance and debt, which is all of us, as you mentioned earlier, kind of struggle to grasp the scale of these numbers that are involved here. And 1.8 trillion seems so abstract that we have to describe it using football field analogies or whatever else. And if we can't really grasp the scale of the debt because it's just this big number that no one really understands or even takes seriously, then it feels like it's difficult to tackle, to solve, right?

• 3:47Joe Weisenthal?

  Well, I'll say two things on that. I mean, I think, A, you have to question, like, at any given point, what is an economy solving for, right? And so people have anxiety about the size of the debt and the deficit. And it's like, but you know, at time, you know, there's also high inflation.

• 4:04Tracy Alloway?

  They also have anxiety about social services.

• 4:07Joe Weisenthal?

  Yeah, and things like that. And then there is also the question of, you know, we think of a household or any entity as like, you have to have money to pay your bills. Are there other dynamics besides numbers that cause a financial crisis? So for example, you could have a country with very high debt to GDP and it's fine because, you know, it goes on for longer than people expect. And you can have countries with low debts and deficits, but because they have an internal political crisis, because people no longer have confidence in the government or the central bank to pay it back, you can have a crisis even at low levels. And so even thinking about what does it mean to solve a debt crisis, talk about debt at

• 4:48Joe Weisenthal?

  the national level is simultaneously a financial discussion and one about political confidence.

• 4:53Tracy Alloway?

  A social conversation. All right, well, on that note, I am very happy to say that I think we have the perfect guest to talk about all of these things. Someone who has consistently had some very big thoughts about these very big numbers. We're going to be speaking with Ray Dalio, the legendary founder of Bridgewater, the author of numerous books, including a new one titled How Countries Go Broke: Principles for Navigating the Big Debt Cycle. And most importantly, a key player in the invention of the chicken nugget. I am very excited. Ray, welcome to the show.

• 5:28Speaker 04

  Wow, what an introduction. Thank you.

• 5:31Joe Weisenthal?

  Tracy's good at introductions. If it had been me, I would have been, I would have just been like, Ray Dalio, you all know his name, let's bring him in. But Tracy does it properly, especially for a guest of your stature.

• 5:42Tracy Alloway?

  Oh.

• 5:43Speaker 04

  You do pretty good too, Joe. Thank you for having me.

• 5:45Tracy Alloway?

  So I want to start with the really important stuff. So first, let me just thank you on behalf of millions of Americans for your contribution to the chicken nugget. What did you do exactly when it comes to chicken nuggets? What was your role?

• 6:00Speaker 04

  Well, When I was pretty young, I started trading commodities because they had the lowest margin requirements. So I figured if I was going to be right, and I wouldn't do it if I wasn't going to be right, that I would be able to get the most amount of leverage out of these. And so I started trading commodities before most people started to trade commodities. And then that led me in 1973, when I graduated from business school, to become a commodity investor, sort of.

• 6:40Speaker 04

  And what I did was I was in charge of institutional futures at one of these brokerage houses. And that brought me in contact with the mechanics of how hedging and how chickens and grain and everything work. So, fast forward, I got to meet the biggest chicken producers in the world. And McDonald's hired me as a consultant of sorts to advise them on how they were going to safely price the Chicken McNugget. You see, their worry was that if they, this was very volatile times then.

• 7:23Speaker 04

  And their worry was if they bought the chicken and they put it on the menu and the prices changed, like went up a lot, they'd have to change the menu price. So they needed to know that they could have stable prices. And we talked. And I knew that the mechanics of chicken, how do you produce it? There were little chicks and they didn't cost much. And what cost most of the money to make a chicken was the corn and soybean meal that they produce as feed, to feed them, to get them to be big chickens and so on.

• 8:02Speaker 04

  And so I went to one of my chicken-producing clients, and McDonald's, and I showed how this chicken-producing client could hedge the price and give them a stable price. And because of that, they were able to put Chicken McNuggets on the menu.

• 8:23Joe Weisenthal?

  I love this story for multiple. I love the idea of creating a sort of synthetic financial chicken McNugget price through the inputs. You know, I want to say, you know, for a long time, I probably bought into this view that the real creators in an economy are the farmers and the growers and the entrepreneurs who, you know, come up with a distribution mechanism. And it always sort of, the, the, the people in finance are thinking, you know, seen as like, oh, they're just sort of speculating or betting on that. And I've changed my mind over the years. And I, you know, there are many good ideas in the world that people have on paper and labs and so forth, that never exist because the financing mechanisms to bring them

• 9:07Joe Weisenthal?

  to place don't exist. And so I would say that if you like, especially in 1975, when I imagine we didn't, in the mid 1970s, when we didn't have the same level of easy running computing power and as liquid markets, et cetera, that someone who figures out how to create a synthetic McNugget price is as much the inventor of the McNugget as the person who figured out how to, you know, ball and fry the chicken.

• 9:31Speaker 04

  You think I can claim being the inventor of the chicken nugget?

• 9:34Joe Weisenthal?

  I know.

• 9:35Speaker 04

  I think that, I think that'd be overreaching.

• 9:37Joe Weisenthal?

  Okay. Well, anyway, I, I love that. I love that story.

• 9:41Tracy Alloway?

  All right. So I want to get to debt, the actual important things. So the thrust of the new book, it kind of reminds me of one of my all time financial favorites, which is A History of Interest Rates by Homer and Sidney. And you're kind of taking a similar approach, although maybe you're not going all the way back to ancient Babylon or something like that. But why did you decide to focus on debt cycles? What's the allure for you? And, and what do you learn from history?

• 10:09Speaker 04

  In 1971, before, after I graduated college and before I went to business school, I clerked on the floor of the New York Stock Exchange.

• 10:22Speaker 04

  And on, and I followed the markets. I followed the markets since I was a kid. I first got involved in markets when I was 12. I used to caddy and then it was the time of the stock market and the stock market was very hot and I took my caddying money and I did that. But anyway, that led me to be on the floor of the New York Stock Exchange and follow markets. And on August 15th, 1971, Richard Nixon, Sunday night, got on the television and told people that the monetary system was going to change, that the money that they thought they could get, gold was thought of

• 11:06Speaker 04

  as money then, and paper money was like checks in a checkbook, didn't have any intrinsic value, no value, that they would not get because there was a fixed exchange rate and he gave some sort of BS story about why that was, which it was really because they didn't have enough gold to back up their money claims. And I walked on the floor of the New York Stock Exchange. I thought, this is a big crisis. This is going to be terrible. And I thought the stock market was going to go down a lot. And I went on the floor and it went up the most in years. And I didn't

• 11:48Speaker 04

  understand that. I didn't understand why. And so I started to do research and I found that on March 15th, 1933, President Roosevelt got on the radio and made the exact same announcement for the exact same reason. And I studied then, why is it that they went up a lot? Okay, you devalue money. When you devalue money and you make money very easy, things go up. And so I learned not just the nature of that mechanic, but I learned that things that surprised me in

• 12:32Speaker 04

  my life often were things that never happened in my lifetime.

• 12:38Speaker 04

  But they happened in times in history. So I studied the Great Depression. I figured, OK, I should study all big things that happened. And I studied that Great Depression. And as a result of doing that, in 2008, I was able to anticipate the global financial crisis ahead of it. And the reason is, is because when you have a debt crisis and interest rates go down and hit zero, so they can't go down anymore, cutting interest rates anymore is no longer going to work.

• 13:17Speaker 04

  And what I learned from studying this event in 1933 is that when that happens, the government prints money and buys the bonds. So what happened in 2008 was exactly that. And I wouldn't have understood it if I didn't study what happened back then. So that changed my whole approach to decision making, which is also why I did this study recently, and that came out as a book that you referred to, you know, Principles for Dealing with the Changing World Order. I needed to study things that hadn't happened in my lifetime. So we'll get into it.

• 14:02Speaker 04

  There are things that are happening to us in our lifetimes that haven't happened before, that you have to go back to the 30s or other periods of time to understand. And related to that is this money debt thing.

• 14:32Speaker 00

  What's next for virtual assets? I'm Jacob Rees, host of Economy Scale, a series exploring growth in key global sectors. And in this episode, we're diving into the digital forces shaping finance. Sean McHugh from Dubai-based Virtual Assets Regulatory Authority has this to say.

• 14:48Speaker 05

  We're seeing a lot of insocial players come in, digital asset dedicated hedge funds, high-frequency traders and that sort of thing, and folks who service insocial clients.

• 14:56Speaker 00

  As more capital enters the market, adaptive regulation is likely to become increasingly key. Rees-Merrick of Ripple says. A lot of regulators globally would like

• 15:07Speaker 06

  To keep the industry at arm's length. That's the opposite here. I think also what you'll find is that regulation and frameworks can come out, but some of them are maybe a slight iteration on some eighty year old policy and not actually in line with what the technology can do and offer. And again, that's very different in Dubai.

• 15:24Speaker 00

  Listen to the full episode wherever you get your podcasts. This series is brought to you by Bloomberg Media Studios and the Dubai Department of Economy and Tourism.

• 15:34Speaker 01

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Maser. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment

• 16:15Speaker 01

  on its recruiting and hiring practices, but according to recruiters, advisors and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at chatgpt.com.

• 16:57Joe Weisenthal?

  Let's talk about the present tense. And obviously Tracy in her fantastic intro talked about the size of the deficit last year and you know, you see so much about the debt. You know, there's two things in the, in the story you told, there's sort of two things that struck me right now, which is one is obviously we don't have a form of currency that's quote backed by anything. There's no. Nothing to quote run out of that we couldn't made out. It's the sort of fiat currency in the truest sense of the word. There's also the other thing is, you know, you mentioned stocks surged because of the these moves represented this big fiscal loosening. We are in an era in which inflation has been high for several years.

• 17:35Joe Weisenthal?

  Inflation is still above target and many people would say this still most persistent issue right now is this issue of too much money. And that there is still, things are too expensive, et cetera. And so there's still this impulse to tighten. So when you think about these lessons that you're talking about then, when you look at our fiscal position in 2025, what do you think about what, when you look at our fiscal position, what do you see?

• 18:00Speaker 04

  Again, I think you can tell from the way that I talk, I think about the mechanics and how does it work? And in answer to your prior question, the reason I'm writing this book is because I think that we're at an inflection point. And I think that people do not economists and people and everybody policymakers don't adequately understand the big debt cycle. They understand the shorter term debt cycles, you know, yeah, things, economies weak, inflation goes down.

• 18:39Speaker 04

  They make credit available, things go up, stocks and everything goes up until you get too much and you get inflation, then they tighten credit and so on. But the big debt cycle isn't understood and yet we're there. We're at the brink of one of these. And so what I think about this is that there are really three factors that drive the big debt cycle.

• 19:09Speaker 04

  And I want to convey those. I'm going to part of my life and I'm trying to convey those. And so, okay, most people think interest rates go up because of inflation, tightness or use of monetary policy. But they don't realize that there are limits to debt growth. And here's how it happens. One man's debts are another man's financial assets. So when you're holding a lot of bonds, that's a large percentage of the portfolio. That's also a large debt.

• 19:42Speaker 04

  And think of the credit system like a circulatory system that brings nutrients to all of the parts of the body. So you give buying power. And if that buying power is used to create productivity, then what it does is it produces incomes that are large enough to pay the debts back and give you productivity and everybody's happy. But if the debts are too large and don't produce the productivity, you don't have the income that's necessary to service those debts. And so in this circulatory system,

• 20:27Speaker 04

  if it's healthy, you're seeing incomes rise with the debts and you're seeing the system work well. When debts rise relative to the incomes that are needed to service the debt, it's like plaque in the system building up in the circulatory system. Because it means that first of all, you have a debt service problem, that you have to pay the debt service. And that's like plaque in that it leaves less room for spending. So for example, the US government has an interest bill that's about a trillion dollars a year. And if they didn't have a trillion,

• 21:12Speaker 04

  they didn't have that interest bill, they'd have a trillion dollars more spending. And that process gets worse and worse over time. In addition, one has to roll over the debt that was last accumulating. So we have to roll over this year about nine trillion, a little over nine trillion dollars.

• 21:37Speaker 04

  Of debt, that means the new, you know, you, they, they, it runs out, then you have to sell it again. And when they have a lot of that debt, that's a problem. And when you're doing, putting a lot more debt on top of that pile of debt. So it's not just the existing debt that's a problem, but you have to add more debt sales, which equals essentially the budget deficit, which now is going to be about seven and a half percent of GDP. You've got to sell those. You have to sell those to people or institutions or central banks or sovereign funds that hold these bonds, where they're already holding too many bonds.

• 22:22Speaker 04

  And now they have to roll them over and you have to sell these new bonds that are coming on. And that can be a problem. And it can be worse than that because if they don't have, if they say, hey, there are too many of these bonds and I've got enough and I don't want to buy it, or worse, there could be some reasons that they don't want to buy it, like for example, sanctions. Okay. We're living in a world similar to the 1930s. And if I was the Chinese, I would worry that what would happen to me might happen, what

• 23:03Speaker 04

  happened to the Japanese in the 1930s, which is that we froze their bonds, meaning they didn't get their money. And so nowadays with sanctions, too many bonds and so on, when I calculate who are the buyers and how much do we have to sell, I find a big imbalance. And I know how that works, you know? What happens is central banks buy these bonds, they print money and buy the bonds and then they lose money on the bonds and you get a negative net worth at the central bank and you get this spiral. When you reach the part of the cycle. That you have to borrow money to pay debt service.

• 23:48Speaker 04

  And then people, the holders of those bonds say, okay, it's a risky situation. In the private credit market, we call that the debt spiral, the debt death spiral. Because when you have to roll over the debts, but it's risky, the credit spreads go up. And when the credit spreads go up, then it adds to the debt service and it becomes a spiral. That's a problem. So the way I calculate it is that we're quite near that point.

• 24:22Tracy Alloway?

  Can I just press you on the inflection idea? Because I think this is one of the things that people really struggle with. Because it is true, the US has a lot of debt and it's true that it's issuing more debt in order to pay down interest. But at the same time, nothing really bad has happened quite yet. And I think there's a sense of, call it maybe debt doom fatigue. We've had warnings over the deficit for decades now. How do you actually go about figuring out when the cycle will turn? Or what specific things do you look for as the proximate catalyst for that inflection point?

• 25:05Speaker 04

  Well, that's, that's, that's why I wrote my book, How Countries Will Go Broke. That, by the way, when I say it's a book, it'll come out as a book. But I made it free online for anybody who wants to read it. And what I wanted to show was the actual mechanics of how that happens. So I, I hope your listeners will get it and, and you know, it's free. It's there for you to start to consider. And what it is, is a look at that mechanics and the signs that you can see that happening. In other words, first, start to do the supply, demand analysis.

• 25:45Speaker 04

  Simple. When that dynamic I described starts happening, you can see it because the amount that is sold.

• 25:54Speaker 04

  Is not bought by the private sector anymore, or those other buyers. And then the central bank has to come in and then print money and make up that difference. And then that the values money. So we saw, let's call it a palpitation. I give this example, it's like a heart attack. We saw that when in 2020 and 2021, when the government needed in 2020 to send out a lot of money. It actually sent out about twice the amount of money that people in their incomes lost or businesses lost.

• 26:36Speaker 04

  They sent out twice as much amount of money then. And then in 2021, they did it again without the need. But there was a move from a right of center policy to a left of center policy in which universal basic income and the desire to do that, put out that money. And so where did the government get the money from? They got it from the central bank that produced the money and sent it out. And so everybody's getting all this money and they're surprised that prices went up. So, okay, so you have that wave of inflation.

• 27:21Speaker 04

  That was like a warning heart attack. So what I'm trying to do in that book is show the dynamics and the mechanics that show how you can calculate what the supply demand is and what will happen and what's likely to happen and what has happened through time. So I go back through time and I show these many, many cases of it so that you can distinguish it. Because I'm with you, the alternative which has been a problem. It, you know, it's like somebody who's built up their cholesterol and lived this way. And they say, I haven't had a heart attack.

• 28:05Speaker 04

  And they get that as positive reinforcement.

• 28:08Tracy Alloway?

  And I get to eat chicken McNuggets.

• 28:11Speaker 04

  Thanks, Torey Dalio. And there we are. So the question I have for everybody, for those in the administration and for others, is that dynamic, which you can see replayed out in there, you could see the moment by moment, literally month by month, changes that are the symptoms and the indicators that you're having a heart attack, an economic heart attack, a debt crisis. It's shown in that book. And the only thing I want to do is, first of all, say, is that logical? Do you see it? And so in our conversation, I can't show you the charts and the numbers

• 28:51Speaker 04

  and so on, but I can tell you. And so we should be asking ourselves, is that logical? Has it happened before? And then what do we do about it? Rather than say, we don't have to worry about it.

• 29:04Joe Weisenthal?

  What does it look like specifically? Okay, we, you walk through the math and you talk about, you know, at some point, you can talk about supply and demand and is the demand actually there? And there have been warnings, as both you and Tracy acknowledged for years, and you have these little tremors or maybe heart attacks and so forth. Let's say it happens. And I don't know what it is, but what is the equivalent in 2025 or 2026 or 2027 of Nixon suddenly taking us off the gold standard? Is it? And you sort of hinted at it. Do you see plausibly mixing up with geopolitics and the trade wars, an equivalent of saying, we don't acknowledge China's debt, that that's not real debt,

• 29:47Joe Weisenthal?

  we're freezing it, we're paying it off, they have no claims to it? Is that something that you could see happen? What is that day look like in your view?

• 29:55Speaker 04

  That day looks like what happened on August 15, 1971, but just much bigger. What you'll see, you'll see the supply demand problem. You will see a spike.

• 30:11Speaker 04

  In interest rates, a tightening, very much, by the way, these, these always happen. That happened in 2020. There'll be a spike in interest rates. It will show up as interest rates rising and the value of money going down, particularly in relation to gold or other currencies, perhaps, although this is some, that will affect all currencies because they'll all be in the same, they'll all depreciate again together. And you'll see the rates rising, even though the Federal Reserve is easing. Then you will see the Federal Reserve come in and buy and do another QE.

• 30:55Speaker 04

  And then you're going to see the kind of reaction that you saw back in 2020 and 21, where not only the inflation component, but gold and other asset prices in the send going up. It'll look like that.

• 31:13Joe Weisenthal?

  But just to be clear, I want to press on this point. When that, what is the equivalent announcement of Nixon going off the gold standard in 19, in August 1971? What is that thing today? Is it, do you?

• 31:29Speaker 04

  They won't, they won't, because, because we have a fiat monetary.

• 31:34Joe Weisenthal?

  Yeah, so we can't do, it can't be the same.

• 31:36Speaker 04

  It doesn't require an announcement.

• 31:38Joe Weisenthal?

  But, but what it, but do you expect there to be a policy announcement of, we are no longer paying the debt, say, owned by China?

• 31:47Speaker 04

  I'll tell you what you will certainly see, and then I'll tell you what you will possibly see. What you will certainly see is the Federal Reserve coming in and buying a lot like it did, and it doesn't have to say an announcement, but it'll come in like that, like they did in 2008, or like they did in 2020, except in a bigger way. But what you might have in preparation for that.

• 32:15Speaker 04

  Like in 1971, is certain actions taken to deal with that issue such as extending the maturity of the debt? These are possibilities.

• 32:26Joe Weisenthal?

  You say you're not like a default on some people's debt?

• 32:29Speaker 04

  Yeah, but I think the government would do it such as that country is going to be sanctioned and therefore to sanction them. We are not going to pay the debt. That would be a very classic and certainly fireworks should go off in your mind about that that signal. I'm not saying it's going to happen, but that is one of those things. And you could see then the government saying that they're going to restructure the debt. They won't say it's a default. They will say, under this policy, we're going to be better off if we don't default, we won't

• 33:14Speaker 04

  change what you're going to get paid, but we're going to spread it out over more years. That'll be a restructuring of the debt. Combined with some monetization of the debt, in other words, a central bank policy where they're buying some of that debt. That'll look like that. If it gets bad, then you could have more extreme things happen.

• 33:59Speaker 01

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs, and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw, innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting and hiring practices.

• 34:43Speaker 01

  But according to recruiters, advisors, and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company. And Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates, quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute, brought to you by ChatGPT. Get started at ChatGPT.com.

• 35:22Tracy Alloway?

  Since we're on the topic of major events in the financial system, I wonder if you've been following any of the papers or thought pieces coming out of parts of the Trump administration? And specifically, this hypothetical situation of a Mar-a-Lago accord where the US basically gets a weaker dollar and also gets to maintain its special status in the global financial system. What do you think about the possibility of the US restructuring the entire system so as to further benefit itself?

• 35:58Speaker 04

  I think that that's a real possibility. And it's done semi-secretively. But I want to be clear what that's like. I don't think it's a depreciation of the dollar in relationship to all other currencies. I think all other currencies will depreciate with the dollar. In other words, it's up to each central bank. And pretty much in terms of other currencies, it's an ugly contest. You know, there's the euro and the European situation, which is terrible. There's the Japanese yen. They have a huge amount of debt, which they're monetizing, and so on.

• 36:41Speaker 04

  There's China's renminbi and that's not going to be a safe store hold of wealth. And none of those currencies are going to sort of be what you'd call strong. So I think it would be very much like the 1970s, which was very much like the 1930s, in which they all go down in relation to gold or other hard assets like that. And, you know, what is the alternative money will be the question. What's the alternative money that is stable in supply? Bitcoin might be a bit part of that, could be a big part of that. But what is the alternative money? Because debt is money and money is debt.

• 37:24Speaker 04

  When I say debt is money, debt is money to come. You're you're holding this and your people are going to give you money. And money is stored in a debt instrument. When you're holding your money, you're putting it in a debt instrument. So they're one in the same. When you have too much debt, it goes down. So I would think it's more like gold, bitcoin. What is the alternative money? Money has two purposes, right? A medium of exchange and a store hold of wealth. As far as a medium of exchange, it can keep working as a medium of exchange. In Germany's Weimar Republic or Argentina recently,

• 38:06Speaker 04

  you can, you know, you can carry barrels of wheelbarrows of money and it's you could still exchange it. They had so much that they couldn't count it, so they weighed it. This is literally the case. So the money will can be used for medium exchange, but as a store hold of wealth, it's not going to be used. And people will look for other store holds of wealth that are movable and tradable. So like in the 30s and then the 40s, what did countries do with each other?

• 38:41Speaker 04

  They're not going to trust that the other country is not going to print the money or do that. So they exchanged gold because gold has the attributes, it's limited in supply, it's not easy to manufacture, and throughout history, it's been held by central banks, it's used. And today, gold is the third largest reserve currency. It's the dollar, then the euro, then gold, and then the Japanese yen. And so that's why I'm saying, I think that in that particular dynamic, you say, well, what is it that's the store hold of wealth? And you see, and I emphasize gold, but Bitcoin too, has elements of that. It's

• 39:22Speaker 04

  not real estate, because real estate is nailed down. You have a problem with real estate. Real estate is nailed down. You can't move it around. You can't, it doesn't work that way. It's very interest rate sensitive. So when interest rates go up, it hurts it. It's also very easily taxed, because it's not moved, you can easily tax it. So it's not like it can be exchanged. So there's a very limited number of alternative monies.

• 39:52Joe Weisenthal?

  So, you know, when people say something like a Mar-a-Lago Accord, and they hearken back to the Plaza Accord, that was clearly about, we want a weaker dollar because we want it weaker against other fiat currencies for the virtue of strengthening American manufacturing. What you're saying then is that it couldn't work that way this time. We can't think in such a tight analog, because it's not going to weaken just against other currencies, it'll weaken against hard assets. Just real quickly, if we were, if we had you on the, if we had had you on the podcast in 2015, we were talking about something else. Are you more exposed in some way, more bullish on gold today in 2025 due to this than you were, say, if we had been talking to you 10 years ago?

• 40:35Speaker 04

  Oh, uh, yes. I think the gold, and I'm not trying to harp on gold, and I don't want people run out and go buy.

• 40:44Joe Weisenthal?

  They will, though. They will. But keep going.

• 40:46Speaker 04

  Okay, so let me, let me restrain them. Okay, I want to restrain them. I want to say, what you don't know about the future is far greater than anything that anyone knows about the future. So we always have to be humble. What you need is a proper diversification to create a portfolio. And what that means is, if you look at gold, gold does well when those other assets that you're typically holding in your portfolio don't do well in such a crisis. Okay, so if you're holding, let's say, a lot of bonds or those types

• 41:25Speaker 04

  of things, the optimal amount in a typical portfolio is in the vicinity of a little bit less than 15%. Like, if you didn't know, you would hold, but let's say it's 10%, okay? A prudent amount, that kind of little bit of gold, serves as a protection and diversifies the portfolio. And what I think the most important thing is that you don't have much of an exposure. I'm not on this show to tout gold, and I want to restrain people. But

• 42:04Speaker 04

  it's also, keep in mind in investing, what happens is, the biggest problem of most investors is that they believe that whatever has been the best investment over the recent past is the best investment, not that it's become expensive and become too expensive and go down. And so there's a tendency of portfolios to, and investors, to hunt, to invest when things become terrific. So by way of example, let's say, AI companies and, you know, companies like that.

• 42:47Speaker 04

  Well, the thing I want to convey to investors is that the idea that what's been going on is a good, what's gone up a lot and not really done well is a good investment rather than it's become expensive is something they have to watch out for. And that the best company is no more the best investment.

• 43:15Joe Weisenthal?

  Right.

• 43:17Speaker 04

  Than the best horse in a horse race is the best thing to bet on. Because there are odds and hurdles that are based into the price. So if you're going to bet on a horse in a horse race, you have an equal likelihood of betting on the worst horse to do the best, to win on because the odds are shifted, the discount and the, you know, that might be the 50 to one shot. And, and so the markets are like that. It's like a football game, you have to beat the, the spread. So that dynamic means that you should balance most.

• 43:59Speaker 04

  The thing I will really convey to your listeners is that knowing how to balance your portfolio well is a very important thing. This is the most important thing because what you know is, you know, you can't be certain about. And you can reduce your risks without reducing your expected returns if you do that well. And that gold is a part of a portfolio. So if I'm giving some thoughts about a portfolio, I would say diversify well. Gold is an effective diversifier. And at a time when there's an ex, you know, let's say too much debt.

• 44:45Speaker 04

  You can also rephrase that and say, too many bonds, and there are going to be a lot more coming, might be considerations. But I don't want to start giving portfolio advice. What I want to do is let people know and let really the policymakers know that there's a solution here. I mean, there's a right thing to do. We're talking about all the difficult things. And I want to emphasize that this can be doable. Okay, you can lower that deficit to go to 3% of GDP. Trump's tax cuts come in. The projected deficit will be about 7.5% of GDP.

• 45:28Speaker 04

  And you have to cut that to about 3% of GDP, because that'll mean that debts won't rise relative to incomes, and it'll greatly improve the supply-demand. So what I want to do is contribute by showing what can be done. And in fact, that was done. From 1992 to 1998, there was a 5% in GDP cut in the budget deficit. So that's what I'm talking about. Going from a 4%, you know, let's say 7, 7.5, down to 3 is a 4% or 5% cut as a percentage of GDP.

• 46:12Speaker 04

  That happened from 1992 to 1998 and can be done. And so I want to talk about those things that can make a big difference.

• 46:24Tracy Alloway?

  So on this note, how do you actually go about building consensus for all these moves? Because it does feel like part of the problem here is there is a lot of disagreement about what debt should be used for. You know, should it fund more defense? Should it fund tax cuts? Should it be used for more social programs or infrastructure or something like that? And then there's an added layer of disagreement about how debt dynamics actually work and when they matter. And I appreciate that part of your book is this effort to show how debt actually operates. But there's still so much disagreement. How do you actually go about, you know,

• 47:07Tracy Alloway?

  getting people to agree on what debt is, how it works, and then do something about it?

• 47:12Speaker 04

  How I'm trying to do that is, first of all, show people the 3% solution and make them aware, make those in Congress and President aware that they need to get the debt to that 3% and that arguing about how they do it, leading to them not doing it, is very much like taking somebody who has a serious heart problem and so on.

• 47:51Speaker 04

  And you could say, okay, you can exercise, you can eat this different way, you can do this and so on, and this is the, and you can do it. And in fact, if you do it, if you get the deficit down, you will get also lower interest rates. And because your interest expenses are so high, those lower interest rates will also contribute to your better health. And in fact, those lower interest rates will help to cause asset prices to go up and the economy to be better, which will also give you tax revenue.

• 48:36Speaker 04

  So that you can do this, but you're arguing about which way to do it will probably prevent you from doing it. So you should start off and take the 3% pledge first. Have it in your mind, what is the goal? 3% of GDP, the budget deficit. Okay, we all agree, can we all agree that we need to do that? Okay, or if we can't agree, look at the, look at the numbers, look at the story that I'm telling you. But please, you know, agree that. At least if you can say, I agree on the number. We'll take the 3% of GDP pledge.

• 49:21Speaker 04

  And then you, what you have is, don't let the particular arguments. I don't care if you do it proportionately across things. If you took... Every item that you can change that contributes to that increase in taxes, cut spending, if you just did everything proportionately and you use that as your backup, if we can't reach agreement, we will do it all proportionally across the everything great, that's, I mean, there are better ways to do it, but at least you did it. But if you don't do it, so you're

• 49:59Speaker 04

  going to be in trouble. So that's the reality because it will be public conflict and it probably won't happen. So that's, that's a choice. If you don't do it, then take the responsibility. Say to yourself, if you don't do it, and there's the crisis that I'm saying is will come, and I can't tell you exactly when it'll come. It's like the heart attack. I can't tell you exactly, I'm getting, you're getting closer. My guess would be three years, give or take a year, something like that. Okay, if you don't do that, and then you

• 50:41Speaker 04

  own it, okay, that you have to take responsibility for the consequences. And if you say, okay, I got three, this three percent solution, I'll find it. And yes, own it. Because you will own it. I mean, when the economy and this heart attack of sorts comes along, then you're going to find yourself that the voters are not going to be very happy. So you own it.

• 51:07Joe Weisenthal?

  Treasury Secretary Scott Besant is verbally on board with what you call the three percent pledge. He also talked about three percent GDP growth, I think a three percent increase, or maybe more, more oil. Extending the tax cuts permanently, is that consistent at all with a three percent pledge? Or do the extending the tax cuts permanently increase the chance of this economic heart attack?

• 51:32Speaker 04

  It depends on the whole dynamic of whatever is done, and I mean this in the following way. You can get tax revenue, that's what matters. It's not necessarily the tax rates. Raising tax rates is going to get you the same tax revenues. Because if the economy is healthy, and then it depends, there's a whole mechanical thing, how interest rates operate and so on, the whole mechanics. You can bring in more tax revenue.

• 52:09Speaker 04

  A good model to look at was 1992 to 1998, in which there's a mix of things that happened. You can see the right mix. The right mix is going to include those things that will naturally, in a healthy way, lower interest rates and help the economy and so on. It's not a perfect solution, but it's, go to that 1992 to 98 period as an example. In my book, I give many examples. The best mix is to properly mix depressing moves with stimulative moves. What I call a beautiful deleveraging.

• 52:54Speaker 04

  And what I mean by that is that if you raise taxes or lower spending, that's depressing on the economy. However, if you do that with an easing of monetary policy, so which is stimulative on the economy, those two things can balance. And they, either of them lowers the debt to income ratio. So, but they can balance each other, and that's a well-engineered move.

• 53:27Tracy Alloway?

  So, I want to go back to the question that Joe was asking a little bit earlier, and perhaps ask it in a slightly different way. But when it comes to taking action on this specific risk, you said earlier that you have made a lot of money by being able to understand debt cycles, specifically in 2008.

• 53:47Tracy Alloway?

  Can you give us some examples of trades that you have undertaken in your, you know, very long financial career that have been successful? And get really specific into it because I think this is one of the, the things that people struggle with. We can talk about diversification and managing your risk, but it's very hard to come up with the specifics of the trade.

• 54:11Speaker 04

  Before 2011, what I saw was there was a leveraging up. So a big sign is debt is increasing much faster than incomes. And that's not sustainable and what limits it? And back then I calculated that who was buying the debt? That was increasing at a fast rate. And that was a number of entities, but most importantly, European banks that were leveraging up to buy the debt. And as they leveraged up, I saw that they were going,

• 54:53Speaker 04

  their capital requirements and their capital limitations would mean that they could not buy, once they were leveraged up, they could not continue to buy at that same pace. And therefore their purchases were going to go down. Their holdings would be the same, but their purchases were going to go down. At the same time, as I saw that budget deficits would be large and therefore bond sales would be large. And I saw the mismatch. So, okay, there's a mismatch.

• 55:35Speaker 04

  So now what is the mechanics of, of that mismatch? That means, you know, get out of credit risk, get out of credit risk, equity risk and so on. And that's an example.

• 55:51Joe Weisenthal?

  Ray Dalio, such a pleasure to have your time. Maybe you're not the creator of the Chicken Nugget, maybe the father, the uncle of the Chicken Nugget, but also Bridgewater and numerous books. Thank you so much for coming on the Odd Lots.

• 56:07Speaker 04

  Thank you for having me.

• 56:08Tracy Alloway?

  Thank you, Ray. That was an absolute pleasure.

• 56:11Speaker 04

  You guys know what you're doing.

• 56:12Joe Weisenthal?

  Thank you.

• 56:14Speaker 04

  It was a pleasure for me.

• 56:15Tracy Alloway?

  Producers, keep that in.

• 56:17Joe Weisenthal?

  Yeah, keep that in.

• 56:32Tracy Alloway?

  Joe, that was, that was so much fun. I'm glad we finally got to interview Ray Dalio.

• 56:38Joe Weisenthal?

  I swear I could have, we could have done an hour on the Chicken Nugget.

• 56:41Tracy Alloway?

  We could have done like five hours.

• 56:42Joe Weisenthal?

  No, I mean, we could have done an hour.

• 56:44Tracy Alloway?

  On the Chicken Nugget.

• 56:45Joe Weisenthal?

  Yeah, easily, because I just think about that, you know, it's now a time when everyone had like tons of access to computing power. And so even the idea of how you, I mean, it's so silly, right? We just talk about, oh, the US might have this economic heart attack in the next three years by gold and by Bitcoin. But I still am thinking about the Chicken Nugget and how it would not have been trivial to come up with a synthetic Chicken Nugget future in 1975. And I do think that we should remember that financial engineering is a form of engineering to bring physical things into the real world.

• 57:19Tracy Alloway?

  No, absolutely. And also insurance is a big player here as well. And I would argue...

• 57:25Joe Weisenthal?

  And one more thought for me on the Chicken Nugget, real quick. No, keep going.

• 57:28Tracy Alloway?

  And I would argue that insurers are becoming a more important, I guess, shaper of worldwide norms, right? Like, they are the ones that are making decisions about what is acceptable. But anyway, these are all big picture thoughts on other things. We should talk about debt.

• 57:45Joe Weisenthal?

  Yes. And, you know, look, I think, I mean, there's a few quick thoughts that I have, you know? Getting a bunch of people to say, we believe that a healthy level of deficit to GDP is 3%. That in a loan doesn't sound hard, you know, but then it's like, oh, you know, but we there we're very reluctant to cut anything of substance and we're also want to make the tax cuts permanently seems kind of hard to square, but you know, we'll see. And then just this idea, like, it seems very clear that Ray is, you know, he didn't give us an exact number, but the gold and also he mentioned Bitcoin multiple times.

• 58:26Tracy Alloway?

  The other thing I'd say on his point about this question of who will buy all the US debt.

• 58:33Joe Weisenthal?

  Yeah.

• 58:34Tracy Alloway?

  There are plenty of people who have pointed out this problem before, and I'm thinking back specifically to JP Morgan, and they did a research note back in 2022, basically all about this. And they pointed out that in 2022, something really unusual happened, which is we had all three major buyers for US debt. So, commercial banks, foreign governments, and obviously the Federal Reserve itself, all stepped back from that market at the same time. So, it seems like an issue. On the other hand, you know, the US can, in theory, force banks to buy more US debt. They can change the regulations and do it that way,

• 59:17Tracy Alloway?

  that sort of financial repression way. So, I don't know.

• 59:21Joe Weisenthal?

  Ray mentioned restructuring. So, it's like you have a five-year note, and then it's like, oh, suddenly it's a 10-year note, but we're not going to call it a default. But of course, you know, these sort of, these are defaults. We might not call them as such, but if you expect to be paid back over five years, it's 10 years, you're functionally defaulting. You know, I will say, look, if you have a huge tax cut, that's a bunch of rich people who have more cash in the bank. And one place that cash in the bank goes to is investments, and one form of investment is bonds. So, you increase the amount of money that's in the household sector, etc. I don't know. I like, I like these types of conversations. And, you know, he said one to three years, if there's no- Meaningful reduction in the deficit for this timing of the heart attack.

• 1:00:04Joe Weisenthal?

  So maybe we'll have Ray on again in 2031 and say, what, uh, what happened?

• 1:00:11Tracy Alloway?

  We'll do it. All right. Shall we leave it there?

• 1:00:13Joe Weisenthal?

  Let's leave it there.

• 1:00:14Tracy Alloway?

  This has been another episode of the Odd Lots Podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway.

• 1:00:20Joe Weisenthal?

  And I'm Joe Weisenthal. You can follow me at the stalwart. Follow our guest Ray Dalio. He's at Ray Dalio. And of course, check out his new book, which you can find for free if you want to buy it. How Countries Go Broke. Follow our producers, Carmen Rodriguez at Carmen Armin, Dashell Bennett at Dashbot, and Kale Brooks at Kale Brooks. For more Odd Lots content, go to Bloomberg.com/oddlots, where we have a daily newsletter that you can sign up to, and check out our Discord, where you can chat about all of these topics, including macro, including gold, including Bitcoin, discord.gg/oddlots.

• 1:00:53Tracy Alloway?

  And if you enjoy Odd Lots, if you like it when we get really philosophical on debt, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad free. All you need to do is find the Bloomberg channel on Apple Podcasts and follow the instructions there. Thanks for listening.

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• 1:02:16Speaker 05

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