International debt is creating instability, global investor says
DUBAI: The debt problem is not one that only the US is facing — it is a world debt problem that China, Europe and many countries are confronting, according to Ray Dalio, founder of Bridgewater Associates.
During a session conducted by TV host, Tucker Carlson, at the World Governments Summit on Wednesday, Dalio said: 'If you have that debt problem, you exacerbate the great conflict that's going to happen. You create political instability. It's a geopolitical problem.
'Climate is costly, roughly $8 trillion a year on climate, so it's a financial thing, and now the question is this new technology and how are we going to handle that and how do we make the most to raise productivity or what is it used for. Is it used for conflict?'
Carlson said: 'You have run one of the biggest hedge funds in the world for a long time, and in order to do that you have had to think about the rest of the world in a systematic way … in doing that, you have developed this framework for understanding what's happening now and what's going to happen.'
Carlson then asked Dalio to discuss the five trends that he had looked at to consider what was going to happen next.
As a global macro investor for 50 years, the Bridgewater Associates' founder said that he discovered that he needed to study history. By doing so, he observed five major forces that operate in a big cycle.
The first is that 'we have a big debt issue globally, that is very important… that is a force, a financial force.'
The second, he said, is the internal order and disorder force that goes in a cycle in which there 'is greater and greater gaps and conflicts between the left and the right and populism that forces a great conflict like a civil war.
'I believe we are in a form of a civil war now, that's going on within countries,' he said.
The third force is the great world power conflict that occurs 'when a great power runs the world order and then there is a rising power that challenges that, you have a great power conflict: US-China.'
The fourth force is that throughout history, acts of nature — 'droughts, floods and pandemics — have killed more people than wars and have toppled world orders more than anything else.'
The fifth big force is 'man's inventiveness, particularly of technology.'
Dalio said: 'Everything that we talk about, everything that we are looking at, falls under one of those and they move in a largely cyclical way and that is the framework that we are now living out.'
Giving his sense of the scale of global debt, Dalio said that 'it's now unprecedented in all of history' and went on to explain how it worked, saying 'there is a supply-demand situation.
'The way the debt cycle works is, think of credit, and our credit system as being like a circulatory system, that credit brings buying power, brings nutrients to all the system … but that credit that we buy things with, that we buy financial assets, goods and services with, creates debt.
'That debt accumulates like plaque in a system that begins to have a problem because it starts to squeeze out spending, for example the US budget, about a trillion dollars a year now goes to pay interest rates. Over the next year we are going to have over $9 trillion debt that we have to pay back and roll forward hopefully.'
So there is a supply demand issue with this debt, 'one man's debts are another man's assets.' Dalio added: 'if those assets don't provide an adequate return, or they feel there is risk in those assets, there is not enough demand for that debt, there is a problem … that problem is that interest rates then start to rise, and those holders of the debt begin to realize there is a debt problem, and worse, on the supply and demand, that they have to sell debt.'
Dalio said that the US would run a deficit of about 7.5 percent of GDP 'if the Trump tax cuts are continued,' which he expected.
'That deficit needs to be cut to 3 percent of GDP… all policymakers and the president should have a pledge to get it to 3 percent of GDP, because otherwise we are likely to have a problem,' he said.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Al Arabiya
33 minutes ago
- Al Arabiya
Hopes rise as US and China hold second day of trade talks
The United States and China began a second day of trade talks on Tuesday, seeking to shore up a shaky tariff truce in a bitter row deepened by export curbs. The gathering of key officials from the world's two biggest economies began Monday in London, after an earlier round of talks in Geneva last month. Stock markets wavered as investors hoped the talks will bring some much-needed calm on trading floors and ease tensions between the economic superpowers. A US Treasury spokesman told AFP on Tuesday the 'talks resumed earlier this' morning. One of US President Donald Trump's top advisers said he expected 'a big, strong handshake' at the end of the talks in the historic Lancaster House, operated by the UK foreign ministry. Trump told reporters at the White House on Monday: 'We are doing well with China. China's not easy.' 'I'm only getting good reports.' The agenda is expected to be dominated by exports of rare earth minerals used in a wide range of things including smartphones, electric vehicle batteries and green technology. 'In Geneva, we had agreed to lower tariffs on them, and they had agreed to release the magnets and rare earths that we need throughout the economy,' Trump's top economic adviser, Kevin Hassett, told CNBC on Monday. But even though Beijing was releasing some supplies, 'it was going a lot slower than some companies believed was optimal,' he added. Still, he said he expected 'a big, strong handshake' at the end of the talks. 'Our expectation is that after the handshake, any export controls from the US will be eased, and the rare earths will be released in volume,' Hassett added. He also said the Trump administration might be willing to ease some recent curbs on tech exports. Concessions? Tensions between Washington and Beijing have heightened since Trump took office in January, with both countries engaging in a tariffs war hiking duties on each other's exports to three figures -- an effective trade embargo. The Geneva pact to cool tensions temporarily brought new US tariffs on Chinese goods down from 145 percent to 30 percent, and Chinese countermeasures from 125 percent to 10 percent. But Trump recently said China had 'totally violated' the deal. 'Investors are willing to grab on to any positive trade headline right now, as this is keeping hopes of a rally alive,' said Kathleen Brooks, research director at trading group XTB. Ipek Ozkardeskaya, senior analyst at the Swissquote Bank, said that although there had been 'no breakthrough' it seemed 'the first day of the second round of negotiations reportedly went relatively well.' 'Rumours are circulating that the US may be willing to make concessions on tech exports in exchange for China easing restrictions on rare earth metal exports,' she said. Rare earth shipments from China to the US have slowed since the tariff war was triggered by Trump's so-called 'Liberation Day' announcements, according to Brooks. The US leader slapped sweeping levies of 10 percent on friend and foe alike, and threatened steeper rates on dozens of economies. The tariffs have already had a sharp effect, with official figures from Beijing showing Chinese exports to the United States in May plunged by 12.7 percent. China is also in talks with other trading partners -- including Japan and South Korea -- to try to build a united front to counter Trump's tariffs. Chinese leader Xi Jinping on Tuesday urged South Korea's new President Lee Jae-myung to work with Beijing to uphold free trade to ensure 'the stability and smooth functioning of global and regional industrial and supply chains.' 'A healthy, stable, and continuously deepening China-South Korea relationship aligns with the trend of the times,' Xi said in a phone call, according to the Xinhua news agency. Chinese Vice Premier He Lifeng is heading the team in London, which included Commerce Minister Wang Wentao and China International Trade Representative Li Chenggang. US Treasury Secretary Scott Bessent, Commerce Secretary Howard Lutnick and Trade Representative Jamieson Greer are leading the US delegation.
Asharq Al-Awsat
3 hours ago
- Asharq Al-Awsat
Taiwan Indicts Four Suspected Spies for China in Case Reaching Presidential Office
Taipei prosecutors indicted four people on Tuesday suspected of spying for China in a case that reached Taiwan's presidential office, seeking jail terms of more than 18 years. Democratically-governed Taiwan says it has faced heightened military and political pressure over the past five years or so from Beijing, which views the island as sovereign Chinese territory, a position Taipei's government rejects. In a statement, Taipei prosecutors said the four, all previously members of the ruling Democratic Progressive Party, had been indicted on espionage and other charges. One of them was a former assistant to then foreign minister Joseph Wu, now head of the National Security Council, while another was a former presidential office adviser, sources familiar with the matter have previously told Reuters. The Taipei prosecutors said in a statement that their suspected crimes included divulging or delivering classified national security information to China. Jail sentences of 18 years or more are being sought, the statement added. Reuters was not able to immediately locate contact details for legal representatives of any of those indicted. China's Taiwan Affairs Office did not respond to a request for comment. Last week, Taiwan's presidential office said it could not comment on the cases given the ongoing legal proceedings. But it said that any person, regardless of party affiliation, who has "betrayed the country, collaborated with hostile external forces and committed crimes that hurt the whole nation" should be subject to the most severe punishment.
Arab News
3 hours ago
- Arab News
Pakistan says China has offered to sell new military equipment, including J-35 fighter jets
ISLAMABAD: Pakistan's government this month announced that China has offered to sell it its new military equipment, including 40 of its advanced fifth-generation J-35 fighter jets and ballistic missile defense systems following Islamabad's armed conflict with India in May. Nuclear-armed neighbors India and Pakistan engaged in armed conflict for four days from May 7-10, pounding each other with artillery fire, fighter jets, drones and missiles. Fighting stopped on May 10 when US President Donald Trump announced both countries had agreed to a ceasefire. Pakistan said its air force downed six Indian fighter jets using Chinese J-10C aircraft on the night of May 6. On May 31, the chief of defense staff of the Indian Armed Forces, Anil Chauhan, confirmed India lost an unspecified number of fighter jets in clashes with Pakistan last month. Both countries have since then sought to bolster their defense capabilities and procure the latest arms as tensions continue to simmer between both nations. Pakistan's government said in a social media post on June 7 that China has also offered to sell KJ-500 airborne early warning and control aircraft, as well as HQ-19 ballistic missile defense systems to Pakistan. 'Under Prime Minister Muhammad Shehbaz Sharif, Pakistan has achieved several major diplomatic achievements including the offer of 40 fifth-generation J-35 stealth aircraft, KJ-500 AWACS, HQ-19 defense systems from China, and the deferment of $3.7 billion in debt,' the Government of Pakistan wrote on social media account X. وزیراعظم محمد شہباز شریف {@CMShehbaz } کی زیرِ صدارت پاکستان نے کئی عظیم سفارتی کامیابیاں حاصل کیں، جن میں چین کی جانب سے 40 ففتھ جنریشن J-35 اسٹیلتھ طیارے، KJ-500 اواکس، HQ-19 ڈیفنس سسٹم کی پیشکش اور 3.7 بلین ڈالر قرض کی مؤخر ادائیگی شامل ہے، ہواوے کے تعاون سے 100,000 پاکستانیوں… — Government of Pakistan (@GovtofPakistan) June 6, 2025 As per a report in the international news publication Bloomberg on Monday, the shares of Chinese defense companies rallied this week after Pakistan's announcement of Beijing's offer to sell its aircraft. The report said shares of AVIC Shenyang Aircraft Company— the maker of China's J-35 stealth fighter jet— soared by their 10 percent daily limit in Shanghai, extending gains for the third consecutive session on Monday. The shares of another China-based company, Aerospace Nanhu Electronic Information Technology Co., soared by 15 percent, the report added. The shares of Chinese arms makers have surged since Pakistan said its air force downed six Indian fighter jets, using Chinese J-10C aircraft, on the night of May 6. The two countries had engaged in armed conflict that day after India struck what it called 'terrorist' camps in Pakistan. The J-35 stealth fighter jet was developed by Shenyang Aircraft Corporation and publicly unveiled at the 2024 Zhuhai Airshow. Its sale to Pakistan would mark China's first export of the fifth-generation jet, which has advanced stealth capabilities for penetrating the airspace of an adversary. On the other hand, the KJ-500 aircraft would improve Pakistan's radar coverage, and its smaller size allows for nimbler use in regional clashes, the report said. The HQ-19 surface-to-air missile systems would enhance the country's ability to intercept ballistic missiles. 'In a sign of how the conflict is changing dynamics, Indonesia— which has relied on aircraft from makers in the US, Russia and elsewhere— is mulling China's offer of J-10 jets,' Bloomberg reported. 'Southeast Asia's largest economy has bought munitions and air surveillance systems from China in the past, but not jet fighters.' Tensions reached a boiling point when India blamed Pakistan for supporting an attack in Indian-administered Kashmir on April 22. Gunmen had killed 26 Indian tourists in Pahalgam resort. New Delhi, which has always blamed Pakistan for supporting militant outfits in the part of Kashmir it governs, accused Islamabad of having a hand in the attack. Pakistan denied the allegations and called for an international probe into the incident. Though the fragile ceasefire continues to hold, ties between the two countries remain strained. New Delhi and Islamabad have both sent delegations to world capitals in hopes of swaying international opinion in their favor.
