Experts, like Ray Dalio, are sounding the alarm on U.S. debt, but they’re not worried about the debt ceiling’s X-date. They’re concerned that Congress won’t address our nation’s issues of creating and accumulating debt.
Dalio, the founder of Bridgewater Associates, the world’s largest hedge fund, says enough is enough when it comes to the “kick the can down the road” approach. He argues that raising the debt ceiling limit once again, which has been done 78 times before, will not solve our problems.
He believes that just increasing the debt limit will “eventually lead to a disastrous financial collapse.”
Sweeping the Debt Issue Under the Rug
Dalio says our country has a history of spending more than it earns, which is not sustainable.
He says that if our debt grows faster than our income, it will be hard to pay a high enough interest rate to convince creditors to hold on to the debt while also having an interest rate that isn’t too high for borrowers to pay.
“When debt assets and liabilities reach the point that the amount of debt sold is greater than the amount of debt that buyers want to buy, central banks are faced with a choice: they either have to let interest rates rise to balance the supply and demand, which is crushing to debtors and the economy, or they have to print money and buy the debt, which is inflationary and encourages holders of the debt to sell the debt, which makes this debt imbalance worse,” a recent LinkedIn post notes.
He says this will eventually create a debt crisis “that is like the runs on the banks that we have been seeing, but with government bonds being what is sold and the run on the bank being a run on the central bank.”
However, he also acknowledges that not increasing the debt ceiling could trigger “financial havoc and social upheaval.”
Could a Default be Beneficial?
Many experts, like Dalio and financial analyst Christopher Irons, believe it’s time for a wake-up call.
Irons, the founder of Quoth the Raven Research, also acknowledges that failing to reach a deal would likely result in a massive shock to global economic markets. However, he says it might be time to default, “taking the medicine” to correct a half-century of flawed policy.
“We need to face reality—this ride could be nearing its end,” he notes in a recent article. “And when you think of it that way, it becomes clear that the sooner we face our spending and printing addiction, the sooner the healing can begin.”
He admits that a default would attack American wealth and lower our quality of life. However, he says the pain is already on its way in one way or another.
“After all, with 6% inflation and an economy about to slam head-first into recession, it’s not exactly like we’re living the vibrant financial highlife at the moment anyway. Yes, the pain from a default would be significantly worse, but it would force-feed all of our elected politicians, government officials, and citizens [to face] the long-ignored truth about how mismanaged our country has truly been financially.”
How to Fix the Debt Elephant in the Room
So, just how would Congress go about fixing our nation’s debt issues?
Dalio suggests “a smart, bipartisan plan” that will simultaneously deal with the country’s financial, economic, and national debt issues.
“I think the system needs to be reformed.”
Dalio believes that Americans collectively need to earn more than we spend and “grow the pie and divide the pie well, with sustainable government finances.”
He says increasing productivity is fundamental to the plan.
“Improving productivity is the only way incomes can rise to be greater than expenditures, and that’s what’s required to manage debts well,” he added. His full thoughts on the matter can be found in his LinkedIn post.
Yet Dalio says the odds of Congress agreeing on a plan like this are not probable.
How to Protect Your Wealth Amid the Debt Ceiling Crisis
As the possibility of another default nears—or the reality that our debt issues will continue sets in—more investors are flocking to gold to protect their wealth.
Gold is typically used as a safe-haven asset in times of economic crisis for several reasons: it holds its value, it has a low correlation with other asset classes, it’s tangible, and it could grow your wealth in the long term.
While the U.S. has yet to default on its debt, it came close in the summer of 2011.
The 2011 debt ceiling crisis created a huge spike in volatility. The ripple effects were felt everywhere, ultimately causing the U.S. dollar to sell off, a 19% drop in the S&P 500 index, and 401(k) accounts to decrease rapidly. It also led to the first-ever downgrade of the U.S. from its top triple rating by Standard & Poor’s.
However, during that time, gold prices rose by nearly 30%, breaching $1,900 an ounce for the first time and hitting a record high of $1,910 an ounce.
How to Buy Gold With Red Rock Secured
At Red Rock Secured, we are committed to helping hard-working Americans protect their retirement savings by converting their conventional IRA into a Self-Directed IRA that can legally hold precious metals.
This type of IRA could help protect your hard-earned wealth from inflation and economic volatility.
Red Rock Secured offers several options for your precious metals purchase, including our Depsotiry IRA and cash transactions.
With our Depsotiry IRA, we’ll help you convert a percentage of your savings into a Self-Directed IRA that can legally hold precious metals tax and penalty-free (IRS CODE 408(M)(3)). Your Depository IRA is administered by industry-leading custodians who oversee all of your asset purchases and liquidations. Red Rock Secured will ensure that your metals are being stored in a top-tier depository with state-of-the-art security. You’ll have the option to select your preferred location, and your metals will be 100% insured by Lloyd’s of London for up to $1 billion.
Our team of gold and silver specialists is ready to help explain and walk you through either process. Just fill out the form on the top right of this page to get started.