US reaches tipping point with rapidly rising debts

The US financial situation is approaching a "tipping point" as government debt grows faster than income, according to billionaire investor Ray Dalio.

As the government borrows more money just to pay debt service while spending continues, the hole gets deeper and deeper, he said in an interview with CNBC on Friday.

“And it works by accelerating,” the Bridgewater Associates founder added. “We are at the point of this acceleration, which creates a supply and demand problem. And it’s compounded by other issues that we’re talking about.”

Among those problems is political dysfunction, which contributed to Fitch's downgrade of the U.S. credit rating earlier this year, as well as Moody's downgrade of its outlook for U.S. debt this month.

Such problems have also weighed on foreign demand, Dalio warned, noting that 40% of U.S. debt is sold to foreigners.

Dalio's warning comes as the total US debt now exceeds $33 trillion. Although he does not have to pay the entire amount, he does need to pay the interest on the debt.

And those debt-servicing costs are rising, casting a shadow over the outlook for Treasuries as demand weakens and supply rises.

That's because global central banks, big buyers of Treasuries, have taken a step back as many major economies have moved toward tightening monetary policy in the wake of the pandemic.

The foreign private sector is also slowing its purchases of U.S. bonds, according to data analyzed by Apollo Management economist Thorsten Slök.