Why Ray Dalio Sees Risk of US Debt Crisis

• US debt service costs are growing rapidly, squeezing out other spending, with a potential debt crisis within three years.
• Geopolitical tensions are causing major foreign holders like China and Japan to reduce their holdings of US debt, exacerbating the supply-demand imbalance.
• Europe, particularly France, is facing similar debt challenges, with borrowing limits and contagion risks.
• The AI boom is seen as a bubble, characterized by concentrated risk and over-investment, with a wealth tax potentially bursting it.
• Expected returns of equities and bonds are now close, indicating increased rate-sensitivity in the stock market.

Ray Dalio warns of a potential US debt crisis within three years, citing unsustainable deficits and rising debt service costs that are squeezing out spending. He highlights geopolitical shifts, particularly from China and Japan, reducing demand for US debt, and notes similar debt challenges in Europe. Dalio also discusses the AI boom, viewing it as a bubble with concentrated risk, and anticipates increased rate-sensitivity in the stock market.