Billionaire investor and Bridgewater Associates founder Ray Dalio cautioned that credit rating agencies like Moody’s are underestimating the true risks associated with U.S. government debt. Dalio argued that the real danger lies not in the risk of default—but in the erosion of the dollar’s value due to inflation caused by money printing.
Danger: Dalio took to Twitter to explain, “Credit ratings understate credit risks because they only rate the risk of the government not paying its debt. They don’t include the greater risk that the countries in debt will print money to pay their debts thus causing holders of the bonds to suffer losses from the decreased value of the money they’re getting.”
- He simplified the concern further: “Said differently, for those who care about the value of their money, the risks for U.S. government debt are greater than the rating agencies are conveying.”
Moody’s downgrade: Dalio’s comments come just days after Moody’s Investors Service downgraded the United States’ credit outlook from AAA to AA1. In its assessment, Moody’s cited persistent fiscal deficits, ballooning entitlement spending, and a lack of bipartisan agreement on sustainable fiscal reforms.
- “Successive U.S. administrations and Congress have failed to agree on measures to reverse the trend of large annual fiscal deficits and growing interest costs,” Moody’s stated in its report on Friday.
- “Over the next decade, we expect larger deficits as entitlement spending rises while government revenue remains broadly flat. In turn, persistent, large fiscal deficits will drive the government’s debt and interest burden higher.”
Still the best debt: Director of the National Economic Council Kevin Hassett appeared on Fox Business Network on Monday, saying, “Make no mistake, the U.S. debt is the safest bet on Earth. There is no country’s debt that I’d rather have than the United States’s. And so, Moody’s can do what it wants to.”
Impact on Rates: Big, well-known investors warning of a higher Treasury risk is not going to help the US sell treasuries.
