Ray Dalio: "AI Is Eating Everything - and It Might Eat Itself"

A year ago, Dalio identified 3% of GDP as the deficit threshold needed to stabilize the debt cycle. Today, the Congressional Budget Office estimates the 2026 deficit at 6% — double the target. The federal government is projected to spend $7 trillion and collect $5 trillion, running a 40% spending deficit. Accumulated debt now stands at 600% of annual revenue, or six times income. Half the $2 trillion deficit is consumed by interest payments, and the government must roll over $9 trillion in maturing debt.

This is not a liquidity problem; it is a supply-demand crisis. Foreign creditors — who hold a third of U.S. debt — face geopolitical risks (sanctions, confiscation) and portfolio concentration risks. Domestic buyers are tapped out. The debt-to-income dynamic mirrors «plaque in the circulatory system,» squeezing out productive spending and choking growth. Dalio warns that this pattern has repeated throughout history, most notably in the 1929–1945 period, and the outcome is always the same: defaults, debasement, or dramatic political change.

Dalio frames money as debt: when you hold cash, you hold a promise from someone to deliver buying power. That promise is vulnerable to debasement when governments print to meet obligations. Gold, by contrast, is wealth you can spend without relying on anyone's promise. It is the only asset central banks can transfer across borders, cannot be printed, and has no counterparty risk.

Bitcoin lacks three critical attributes. First, it offers no privacy — all transactions are traceable, making it vulnerable to surveillance and control. Second, central banks will not adopt it, limiting its role to individual and institutional speculation. Third, it correlates highly with tech stocks, meaning holders sell Bitcoin when squeezed elsewhere. Quantum computing and regulatory risk further cloud its long-term viability. Dalio is emphatic: «There is only one gold.»

Dalio argues economists misunderstand tariffs by excluding tax burden from inflation calculations. If your taxes rise, that is inflation — it takes money out of your pocket just like rising housing costs. Tariffs historically provided the largest share of government revenue and remain a legitimate way to raise funds while forcing foreigners to share the burden. More importantly, tariffs address unsustainable trade deficits and capital dependence on adversaries.

The U.S. has «hollowed out» manufacturing and the middle class, creating both economic and geopolitical vulnerability. In a world moving from multilateral cooperation to power-based confrontation, nations must build independence. Tariffs are part of a broader industrial policy to reshore critical supply chains. Trump's proposal to replace income tax entirely with tariffs, however, is infeasible due to scale and the regressive burden it would place on lower-income households.