Getty Images
- The US is nearing an "inflection point" as the debt pile accelerates, Ray Dalio told CNBC.
- Rising debt also means bigger interest payments, which calls for more bond issuance.
- "We are at the point of that acceleration, which creates the supply-demand problem."
The US's fiscal situation is heading for an "inflection point" as government debt grows faster than income, according to billionaire investor Ray Dalio.
With the government borrowing more money to just pay for debt service while spending continues unabated, the hole gets deeper and deeper, he said on a CNBC interview on Friday.
"And the way that works is that it accelerates," the Bridgewater Associates founder added. "We are at the point of that acceleration, which creates the supply-demand problem. And it's made worse by the other issues that we're talking about."
Among those issues is political dysfunction, which contributed to Fitch's downgrade of the US credit rating earlier this year as well as Moody's lowering of its outlook in US debt this month.
Such issues have also impacted foreign demand, Dalio warned, noting that 40% of US debt is sold to foreigners.
"As a country, do we have a good income statement and do we have a good balance sheet — more assets than we have liability?" he said. "The worse that gets, the more we are going to have that long-term problem. And it's just, you can see it in the numbers. It's just a matter of numbers. We are near that inflection point."
Dalio's warning comes as total US debt now tops $33 trillion. While it doesn't have to pay off that entire amount, it does need to pay the interest on that debt.
And those debt servicing costs are rising, casting shadows on the outlook for Treasurys as demand weakens while supply booms.
That's because global central banks, a big buyer of Treasurys, have taken a step back as many major economies flipped to monetary tightening mode post-pandemic.
The foreign private sector has also been slowing their purchases of US bonds, according to data analyzed by Apollo Management economist Torsten Sløk.
"The bottom line is that investors across all asset classes need to spend some time not only on who is buying Treasuries — including whether it is yield-sensitive or yield-insensitive buyers — but also on Treasury auction metrics and what the rating agencies are saying and doing," he wrote.