Ray Dalio’s Warning on “Unsustainable” US Debt: What Investors Need to Know 

Tradingkey - So far in 2025, it has been a roller coaster ride for investors. The rally in US stock markets post-President Trump’s election quickly fizzled out as markets realised he was serious about imposing punitive tariffs on both allies and strategic competitors.

Unfortunately for investors, that also means a lot of uncertainty. And, as we all know, financial markets hate uncertainty. That’s the main reason stocks have been battered in the past month or so. Indeed, new tariffs announced on Wednesday (26 March) by President Trump – of 25% on all automobile imports and parts – saw the main stock indices fall.

The S&P 500 Index finished the day down 1.1% while the tech-heavy Nasdaq Composite Index declined 2%. Amid all this drama there’s also the fact that the US debt ceiling issue remains unresolved and will have to be negotiated in the months ahead.

It’s one long-term issue that is hampering the appeal of US markets for global investors. It’s also a topic that legendary investor Ray Dalio has talked at length about. His new book How Countries Go Broke is a look back at history’s big debt cycles. 

Right now, he’s worried about the level of US debt and what that means for the country’s position as the global destination for investors’ capital. Here’s what investors should know about Ray Dalio’s take on the current US debt situation.

US Debt Keeps On Climbing 

First off, individuals should be aware of the enormous amount of debt that the US owes. Currently, the country has a national debt of more than US$36 trillion.

Earlier this week, Ray Dalio expanded upon that and discussed how the US national debt could have a profoundly disruptive impact on the global economy.

Speaking in Singapore, on the sidelines of the CONVERGE LIVE event, Dalio said that “the first thing is the debt issue, we have a very severe supply-demand problem”. He also said that the US “has to sell a quantity of debt that the world is not going to want to buy”.

This issue, he later went on to say was imminent and of paramount importance. Why? Because the US deficit needs to go from a projected level of 7.2% of GDP down to about 3% of GDP. 

In 2024, the Congressional Budget Office (CBO) declared that the US budget deficit was 6.6% of GDP. The upshot of this whole process of getting the budget deficit down will be unsettling.

Dalio said “That’s a big deal. You are going to see shocking developments in terms of how that’s going to be dealt with”.

Investors Should Look To Diversify

While Ray Dalio has stepped down from Bridgewater Associates – an investment firm he founded – his opinion still carries exceptional weight given his standing in the industry.

Last year, Dalio said that investors should look to diversify their investment holdings away from the US and that places with great balance sheets, internal order and are neutral in geopolitical conflicts look like great options.

He cited countries such as India, Singapore, Indonesia, Malaysia, and Vietnam as potentially attractive places to invest. Meanwhile, on a Bloomberg Odd Lots podcast earlier this month, Dalio talked about how a “prudent” amount of gold can also help add diversification to portfolios in this environment.

During that conversation, he said somewhere in the region of 10% to 15% of a portfolio in hold would serve as protection while simultaneously diversifying risk. He had also earlier commented in that interview that the US faces a fiscal “heart attack” of sorts in the next three years or so due to the amount of debt it has.

Overall, investors should remember that investing into the world’s largest economy can still have its benefits but, as Dalio explained, doing so today comes with a lot more geopolitical risks attached to it versus 20 years ago. 

As a result, geographic diversification is imperative when building out an investment portfolio in the decades ahead.