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New York Times
2 days ago
- Business
- New York Times
Ray Dalio's Prescription for Avoiding Fiscal Catastrophe
Ray Dalio's fix Ray Dalio calls it the '3 percent solution,' and it's gaining attention with White House officials and senior Republicans as a potential fix to America's fiscal woes even as the party pushes ahead with a mega spending bill that's roiling the bond markets. For the past couple of weeks, advance copies of Dalio's forthcoming book, 'How Countries Go Broke: The Big Cycle' — and Dalio himself — have been making the rounds with policymakers in Washington and investors in New York. The hedge fund mogul has been warning for some time that America's soaring deficits risk economic calamity, and Dalio recently met with the chairman of the House Budget Committee, Representative Jodey Arrington of Texas, and its members. What's the solution? It aims to bring the annual deficit-to-G.D.P. ratio down to 3 percent, from around 7 percent. According to Dalio, this can be accomplished only by pulling 'three levers' — cutting spending, raising tax revenue, and the corresponding lowering of interest rates. 'The 3 percent solution is very practical,' he told me by email. 'It has worked many times in many places, most recently in the U.S. from 1991 to 1998.' Dalio argues the interest rates lever is the most consequential. The problem: Everyday interest rates are tied to the budget. We're seeing that connection play out in real-time. The bond market has started charging a higher interest rate to buy U.S. government debt as confidence in the government's fiscal discipline sours. If Congress can get serious, Dalio argues, it will send a huge signal to the markets. Treasury Secretary Scott Bessent had made a similar argument. But he has recently gone quieter on that message as the bill, which is expected to add significantly to the deficit over the next decade, advanced through the House. A fiscally responsible budget would ease volatility in the bond market. Any economic slowdown caused by reduced spending could be offset by lower interest rates, which is what a heavily indebted nation needs most. The challenge: All three levers need to work in tandem. Both parties have shown little interest in meaningfully cutting spending. Raising taxes, too, is a nonstarter. The upshot is a stalemate in Washington and higher interest rates. 'All the political decision makers on both sides of the aisle that I spoke with agree that we are likely headed for a terrible outcome if the deficit isn't cut down to about 3 percent of G.D.P.,' Dalio continued. 'So I feel it's like being on a boat headed for the rocks in which everyone agrees that we will crash if we don't change our course, but they're too hung up arguing which way to turn.' The question is, even if he is right — which he probably is — what would actually push lawmakers to act and avoid the rocks? 'The forcing mechanism will likely be a debt crisis and all that goes with it,' he wrote. Nvidia beats financial expectations despite limits on Chinese exports. Shares in the chipmaker are up 6 percent in premarket trading after it reported a 69 percent jump in quarterly revenue, to $44.1 billion. But Jensen Huang, Nvidia's C.E.O., warned that restrictions on sales to China would hurt America's global tech dominance. JetBlue and United form an alliance. The airlines announced a deal in which customers can earn frequent flier miles on each other's flights. The partnership will allow United to return to Kennedy International Airport amid continuing troubles at its New York-area hub at Newark Liberty International Airport, and perhaps more important allows the two to collaborate without having to strike a merger or deeper alliance. The Trump administration seeks to revoke visas for Chinese students. Secretary of State Marco Rubio said officials would 'aggressively' crack down on existing visas, especially for those studying unnamed 'critical fields,' and step up scrutiny of future applicants from China. The administration has already halted interviews for student visa applicants. Separately, President Trump suggested a cap on international students enrolling at Harvard. Why tariffs uncertainty is far from over Global markets are rallying on Thursday as investors cheer a big blow to President Trump's trade fight — even if economists warn that it hardly removes all of the risks. The dollar and S&P 500 futures are up after the U.S. Court of International Trade ruled unanimously that many of Trump's biggest tariffs — primarily those imposed under the International Emergency Economic Powers Act — are illegal and gave the administration up to 10 days to wrap up the paperwork needed to end them. That particular law, the court ruled, 'does not authorize the president to impose unbounded tariffs.' The administration sharply criticized the ruling and vowed to appeal it; the matter could end up being decided by the Supreme Court. Here's what was struck down: And some experts say the government may have to reimburse companies that have had to pay tariff duties on the above. What wasn't: The ruling throws trade negotiations with other countries into limbo. Why should anyone offer Washington any concessions until this is resolved? Investors view this as good news. Companies with big tariffs exposure — including Adidas, Puma and Stellantis — rose sharply on Thursday. In fact, stocks have rallied in recent weeks on investors' belief that the worst of the trade war is over. A lower overall tariff rate will be better for corporate profits, kick-start hiring and investment and could persuade the Fed to lower interest rates. Wall Street has lowered the odds of a recession since Trump began pausing and rolling back some of his levies. Is it too soon to celebrate? 'The Trump administration has other authorities it can use to impose tariffs similar to those the court struck down,' Alec Phillips, a political economist at Goldman Sachs, wrote in a research note last night. They include reclassifying the levies under different trade laws, such as by using Section 232 of the Trade Expansion Act of 1962, which underpins the levies on steel, aluminum and auto imports that remain in place. There's plenty at stake: The ruling potentially deprives the government of about $200 billion in annual tariffs revenues, he estimates. The Musk-Trump situationship Elon Musk is ending his formal work as President Trump's chief cost-cutter, seemingly driven by frustration with Washington gridlock and pressure from investors to refocus on the companies that made his fortune. But we don't knowhow big any Musk-Trump rift is. And Musk will still need to retain some influence in the Trump administration to help out his businesses. Musk is stepping back from Washington and politics to some degree. He noted on X last night that 'my scheduled time as a Special Government Employee' was coming to an end. That's after he publicly criticized Republicans' budget bill, which Trump has championed. And Musk told Ars Technica, 'I think I probably did spend a bit too much time on politics.' But Musk's influence in Washington appears shakier. Trump has pressed ahead with tariffs despite Musk pushing back publicly, if gingerly. And while he said that his Department of Government Efficiency team's approach has become 'a way of life throughout the government,' Musk has acknowledged that the initiative has faced 'an uphill battle.' Trump's recent trip to the Middle East underscores that reality. Musk had sought to derail a big A.I. data center deal struck by one of his archrivals, Sam Altman of OpenAI. The Wall Street Journal reports that Musk had warned executives at the Emirati tech investor G42 that Trump wouldn't sign off on the plan unless his xAI was included in the transaction. In the end, Trump officials pressed ahead — and Musk's company was left out. (A reminder: Musk's move appears to be what Altman said at last year's DealBook Summit that the Tesla chief wouldn't do: 'I believe pretty strongly that Elon will do the right thing and that it would be profoundly un-American to use political power to the degree that Elon would hurt competitors and advantage his own businesses.') Musk still needs to stay on Trump's good side. SpaceX and Starlink have benefited heavily from a seeming lock on space-related contracts. Tesla's bet on autonomous vehicles, which is reportedly poised to begin a crucial real-world test next month, depends on Trump regulators relaxing rules on the technology. And Musk, like other A.I. entrepreneurs, is continuing to push for looser oversight. 'You call that chickening out?' — President Trump, bristling on Wednesday at a reporter's 'nasty' question about the so-called TACO trade, short for 'Trump Always Chickens Out' in trade fights. The Fannie and Freddie trade Hedge fund managers who have bet big on Washington relinquishing control of Fannie Mae and Freddie Mac may have reason to smile this week. Over-the-counter shares of the mortgage finance giants briefly surged on Wednesday after President Trump posted on social media that he was 'working on TAKING THESE AMAZING COMPANIES PUBLIC.' Trump said that the U.S. government would still guarantee loans made by Fannie and Freddie if they're no longer under Washington control, a backstop that could help limit volatility in the mortgage market. That said, it's unclear what a guarantee might look like in practice. Here's who stands to gain: Big shareholders could see a 'windfall' from privatization, said Lawrence White, an economics professor at the N.Y.U. Stern School of Business. But that's a big if, he added, since it's unclear whether Trump will actually follow through. (The president made a similar promise in his first term, and it never happened.) The context: Fannie and Freddie have been under government control since the federal government bailed them out in 2008. At the time, canny investors saw an opportunity, buying up shares in both at rock-bottom prices. It's been a long wait. Even as the housing market bounced back, consecutive administrations took no action to re-privatize the companies. Trump seems to see it as a priority, but the administration is 'going to need congressional cooperation,' White said. Risks loom. Removing the conservatorship could have ripple effects that affect borrowers with lower incomes or credit scores, 'resulting in less access to credit and a harder path to homeownership,' Bharat Ramamurti, a senior adviser at the American Economic Liberties Project, said in a brief released on Thursday. A rise in mortgage rates would be probable too, but the magnitude would depend on how privatization is carried out, said Laurie Goodman, the founder of the Housing Finance Policy Center at the Urban Institute. Deals Tech and artificial intelligence Best of the rest
Time of India
3 days ago
- Business
- Time of India
Billionaire who predicted 2008 crash warns Trump over $36 trillion U.S. debt crisis
Ray Dalio , the hedge fund billionaire who foresaw the 2008 financial meltdown, has issued a stark warning about America's ballooning $36 trillion debt—calling it the country's 'biggest problem.' In his new book, How Countries Go Broke: The Big Cycle, and in a recent NBC interview, Dalio expressed deep concern about the fragility of the U.S. financial system, comparing today's conditions to the economic turmoil of the 1930s. Dalio also directed sharp criticism at Donald Trump , accusing the US president's administration of slashing federal spending and promoting policies reminiscent of hard-right regimes from the 1930s. He argued that Trump's efforts to expand presidential power mirror the actions of historical figures like Andrew Jackson and Franklin D. Roosevelt, but in a more aggressive manner. 'It would be fair to argue that his attempts to maximize the power of the presidency by bypassing the other branches of government are analogous to the ways that Andrew Jackson (of the right) and Franklin D Roosevelt (of the left) did, though he is even more aggressive than they were,' Dalio said. Play Video Pause Skip Backward Skip Forward Unmute Current Time 0:00 / Duration 0:00 Loaded : 0% 0:00 Stream Type LIVE Seek to live, currently behind live LIVE Remaining Time - 0:00 1x Playback Rate Chapters Chapters Descriptions descriptions off , selected Captions captions settings , opens captions settings dialog captions off , selected Audio Track default , selected Picture-in-Picture Fullscreen This is a modal window. Beginning of dialog window. Escape will cancel and close the window. Text Color White Black Red Green Blue Yellow Magenta Cyan Opacity Opaque Semi-Transparent Text Background Color Black White Red Green Blue Yellow Magenta Cyan Opacity Opaque Semi-Transparent Transparent Caption Area Background Color Black White Red Green Blue Yellow Magenta Cyan Opacity Transparent Semi-Transparent Opaque Font Size 50% 75% 100% 125% 150% 175% 200% 300% 400% Text Edge Style None Raised Depressed Uniform Drop shadow Font Family Proportional Sans-Serif Monospace Sans-Serif Proportional Serif Monospace Serif Casual Script Small Caps Reset restore all settings to the default values Done Close Modal Dialog End of dialog window. by Taboola by Taboola Sponsored Links Sponsored Links Promoted Links Promoted Links You May Like Massive Car Finance Refunds Funded – Look Up Your Name to Claim Lookup Finance Get Offer Undo — RayDalio (@RayDalio) In excerpts published by The Guardian, Dalio warned that cutting federal support systems could harm millions of Americans and further destabilize the economic order. Live Events Last month, Dalio cautioned that the U.S. may be headed for something 'worse than a recession.' He pointed to a convergence of factors, including Trump-era tariffs and the breakdown of the current monetary system, as signs of looming crisis. 'We have a breaking down of the monetary order,' he said. 'Such times are very much like the 1930s. I've studied history, and this repeats over and over again.' As the founder of Bridgewater Associates , the world's largest hedge fund, Dalio's warnings carry significant weight—especially given his track record of predicting major economic shifts.
Yahoo
3 days ago
- Business
- Yahoo
Investor Who Predicted 2008 Crash Sounds Alarm On 1 Particular Donald Trump Policy
Hedge-fund billionaire Ray Dalio — who correctly predicted the financial crash that roiled the world in 2008 — has warned in his new book that America's current $36 trillion debt is the country's biggest problem. And Dalio slammed Donald Trump's administration for slashing federal spending and gutting the government because 'many people who will be hurt by them will fight back and valuable support systems will be weakened or eliminated,' according to quotes of 'How Countries Go Broke: The Big Cycle' that The Guardian published Tuesday. Dalio, the founder of global hedge fund Bridgewater Associates, also suggested Trump's 'Make America Great Again' policies are 'remarkably like the policies that those of the hard-right countries in the 1930s used.' 'It would be fair to argue that his attempts to maximize the power of the presidency by bypassing the other branches of government are analogous to the ways that Andrew Jackson (of the right) and Franklin D Roosevelt (of the left) did, though he is even more aggressive than they were,' he added. 'We will see how far he will take it.' Dalio last month warned how 'something worse than a recession' could soon happen, attributing it to a raft of issues including Trump's tariffs on products imported from other countries. 'We have a breaking down of the monetary order,' Dalio cautioned on NBC's 'Meet The Press.' 'Such times are very much like the 1930s,' he added. 'I've studied history, and this repeats over and over again.' Harvard's Laurence Tribe Delivers Unflinching Message To Foreign Students In Trump Crosshairs Fox News' Brit Hume Scoffs At Trump's Latest Rant: 'Don't Know What' He's Talking About Wall Street Journal Shatters Core Trump Fantasy In Editorial Urging GOP 'Revolt' Rage Against The Machine's Tom Morello Unleashes Anti-Trump Fury With Flip Of His Guitar
Yahoo
25-03-2025
- Business
- Yahoo
Dalio Warns GOP of ‘Dire' Debt as Lawmakers Weigh Tax Cuts
(Bloomberg) -- Bridgewater Associates founder Ray Dalio warned House Republicans of the dangers of rising US deficits and urged them to cut the budget deficit to just 3% of gross domestic product or risk debt service costs squeezing government spending. They Built a Secret Apartment in a Mall. Now the Mall Is Dying. Why Did the Government Declare War on My Adorable Tiny Truck? Trump Slashed International Aid. Geneva Is Feeling the Impact. Chicago Transit Faces 'Doomsday Scenario,' Regional Agency Says Paris Votes to Make 500 More Streets Car-Free Dalio's message of austerity comes as House and Senate Republicans battle over the size of spending cuts to be paired with a giant tax cut coming later this year. The US budget deficit was 6.6% of GDP in 2024, according to the Congressional Budget Office. 'There was a good understanding of the choices and the possibilities to manage this dire situation over time,' Dalio said in a statement after the meeting. 'I look forward to staying in touch about these issues and having similar discussions with others so that there are realistic assessments of the issues and what might be done to deal with them.' The House has drafted a $4.5 trillion tax cut blueprint paired with $2 trillion in spending cuts over ten years, which would add about $3 trillion to deficits over the decade. Senate Republicans want to deploy a budget gimmick to allow them to add trillions more in tax cuts without more spending cuts. House and Senate GOP leaders will work to resolve their differences in a meeting with Treasury Secretary Scott Bessent later Tuesday. After the Dalio meeting, House Budget Chairman Jodey Arrington said he's resolved to block any Senate tax plan that lacks sufficient spending cuts, saying it would be dead on arrival in the House. But Arrington also acknowledged that the House's own budget blueprint fails to meet Dalio's 3% GDP target. 'This is not something you accomplish in one bill,' he said. 'We need to begin exercising the spending cut muscles.' Representative David Schweikert, an Arizona Republican, said Dalio's message means Congress must pass spending cuts to pay for their plans to make President Donald Trump's expiring 2017 tax cuts permanent as well as any new tax cuts. Dalio has been warning for some time that the US's growing debt burden threatens the country's financial stability, an argument he advances in a forthcoming book: How Countries Go Broke: The Big Cycle. 'We are at a precarious time in what I call the Big Cycle, where there is a confluence of major forces playing out in a way that is similar to many times in history,' Dalio said in a statement released in advance of the meeting. Dalio, 75, stepped down as co-CEO of Bridgewater in 2017 and retired from the hedge fund in 2022. He has a net worth of more than $16 billion, ranking 132nd in the Bloomberg Billionaires Index. (Updates with Arrington in the fifth and sixth paragraphs) Google Is Searching for an Answer to ChatGPT The Richest Americans Kept the Economy Booming. What Happens When They Stop Spending? Business Schools Are Back A New 'China Shock' Is Destroying Jobs Around the World How TD Became America's Most Convenient Bank for Money Launderers ©2025 Bloomberg L.P. Sign in to access your portfolio
