Ray Dalio: The way a country "goes bankrupt" is through currency devaluation, and the biggest concern now is the stagflation environment; gold is the only asset that maintains its value over time

Recently, Ray Dalio discussed his new book "How Countries Go Bankrupt" and the U.S. debt crisis in an interview. Dalio stated that unlike corporate and personal bankruptcies, countries have two special abilities: printing money and taxation. Therefore, a country's "bankruptcy" is not a default, but rather currency devaluation. Dalio predicts that the U.S. will adopt a Japanese model: to address the debt issue through printing money, currency devaluation, and artificially lowering interest rates. This means that future generations will repay current debts with devalued dollars. Dalio is concerned that if this occurs during an economic recession, it will lead to a very difficult social, political, and economic environment. Dalio also mentioned that the fiscal situation in the U.S. is shocking, proposing a plan to reduce the budget deficit to 3% of GDP: cut spending by 4%, increase tax revenue by 4%, and lower interest rates by 1%, but he believes the likelihood of this plan being realized is only 5% due to the overly absolutist political environment. In the interview, Dalio stated that in discussions in Washington, he found that almost all members of Congress agree with this solution, but no one dares to publicly support it because voters demand commitments of "no tax increases" or "no cuts to benefits." This absolutist political environment makes rational economic policies impossible to implement. Here are the key points from the interview: 1. Regarding the transition of life stages, when asked which is more fulfilling, building the world's largest hedge fund or writing a bestseller, Dalio said this is a question of different life stages. In his youth, he focused on competition and building; now, at this stage, he is more willing to impart what he has learned, which brings him great joy. 2. On investment failures, Dalio shared a painful experience from 1982 when he predicted an economic crisis would follow Mexico's debt default, but he misjudged the situation, leading to significant losses and having to borrow $4,000 from his father to pay family bills. This failure taught him the importance of humility and diversification in investing. 3. Regarding the national debt crisis, the dynamics of national debt are similar to those of individuals and companies, but there are two important differences: countries can print money and obtain funds through taxation. When faced with choices, governments will print money, so a country's "bankruptcy" is not a default, but rather currency devaluation. 4. If the credit system is likened to the human circulatory system, then debt is like "plaque" in the arteries. When debt growth exceeds income growth, interest payments can block arteries like plaque, squeezing out other consumption. Currently, the fiscal situation in the U.S. is shocking: Total debt: Approximately $36-38 trillion; Annual deficit: Approximately $2 trillion (spending $7 trillion, revenue $5 trillion); Annual debt issuance requirement: $12 trillion ($1 trillion interest + $9 trillion principal repayment + $2 trillion new deficit). More seriously, 60% of government spending is on social welfare programs, accounting for 85% of revenue; interest payments account for 20% of revenue; defense spending is close to $1 trillion. These rigid expenditures total 85% of the budget, equivalent to 110% of revenue. 5. 3% three-part solution: Ray Dalio proposed a plan to reduce the budget deficit to 3% of GDP: cut spending by 4%, increase tax revenue by 4%, and lower interest rates by 1%. However, he believes the likelihood of this plan being implemented is only 5% due to the overly absolutist political environment. In his discussions in Washington, Dalio found that almost all members of Congress agreed with this solution, but no one dared to publicly support it because voters demanded they commit to "no tax increases" or "no cuts to benefits." This absolutist political environment makes rational economic policies impossible to implement. 6. Since 1750, 80% of the world's currencies have disappeared, and those that remain have also experienced severe devaluation. The challenges currently facing the United States are very similar to those in the 1970s. In 1971, Nixon announced the decoupling of the dollar from gold, ushering in the era of pure fiat currency, followed by a decade of stagflation. What we need to worry about most now is the 'stagflation environment.' 7. Dalio emphasized that gold is the world's second-largest reserve currency and has unique safe-haven properties: it is negatively correlated with other assets; performs well in times of extreme stress; does not represent anyone's debt; and historically, 80% of currencies have disappeared, making gold the only asset that has consistently retained its value. 8. For investors concerned about inflation and currency devaluation, Dalio recommends inflation-indexed bonds as the safest investment, allocating 10-15% of the portfolio to gold as a diversification tool, and avoiding real estate because it is sensitive to interest rates and easily taxed. 9. For young people, Dalio advises calculating how long one can survive without income, the importance of forced savings, and investing in assets that improve quality of life (such as housing), merging work and passion. The following is the full text of the interview translated by AI Host: Thank you very much for participating in this interview. Um, how long did it take you to write this book? Is this your fourth book? Dalio: Four books. Host: Four books, okay. So how long does it take to write a book like this? Dalio: This is research I have been doing for a long time. So organizing it and publishing it, I would say, if calculated part-time, it took about a year. Host: You established the world's largest hedge fund. So how does the joy of writing a bestseller compare to building the world's largest hedge fund? Dalio: You know, as you might know, this is a matter of life stages. Some stages of life are about competing and building something, while other stages are about passing something on. So at this stage of life—your way, my way—being able to pass on what I have learned is a tremendous joy. So I really enjoy this process. Host: Is this book meant to reassure people, or to scare them? Dalio: Neither. What I want to convey is the mechanism—the cause-and-effect relationships—so that people can understand what has happened and then be able to respond. I think this book will make people worried, but I have a principle: if you are worried, you don't have to worry; If you are not worried, then you need to worry. Because if you worry about something, maybe you can prevent it from happening. Host: When did you decide to become a writer? Instead of just being an investor? After all, many top hedge fund investors just continue to sit in front of the screen. Did you decide a few years ago that you wanted to do more than just stare at the screen? Was it a few years before you decided to leave Bridgewater? Dalio: No, it was about 35 or 40 years ago that I started. I found that whenever I was making decisions, if I could pause, reflect, and write down the criteria I used to make decisions— It would lead me to think more deeply about the matter. Then I realized I could turn those criteria into code and backtest it, so I could know how my decision-making process worked. Since then, which was 35 years ago, that's how I built Bridgewater.— Establishing criteria, testing those criteria over a long period, and then forming a "game plan." So I can say that since 35 years ago, I started writing things down, and I call these "principles." I have probably written thousands of such principles. Host: For those who haven't followed the hedge fund world, you come from Long Island and attended Long Island University. Would you say you weren't a superstar in high school? Dalio: Not at all. But you performed well at Long Island University and eventually got into Harvard Business School, starting your career. Your career almost went off track because you punched your boss, right? Dalio (laughs): No, that was where my opportunity began. I was fired. After I was fired, I started my own business. Host: You were fired and then founded your own company. At some point, you borrowed money from your father because the company wasn't doing well at the time. Did you feel like you might fail? What were your thoughts at that time? Dalio: Yes, let me talk about that event because it was one of the worst moments of my life, but also one of the best experiences. Dalio: It was between 1980 and 1981. I calculated that the money the U.S. lent to other countries exceeded their ability to repay, and a severe debt crisis would erupt. Then in 1982, Mexico defaulted on its debt. I gained a lot of attention because I predicted this. I thought I was right, but I couldn't have been more wrong. I thought we would have a major economic crisis as a result, but the opposite happened; the stock market went up, and they loosened monetary policy. I made a serious mistake and lost a lot of money because of it. I was so poor that I had to borrow $4,000 from my father to pay family bills. That was painful. It changed my perspective on everything in two ways: First, it made me think, "How do I know I'm right?" It gave me the necessary humility to balance my boldness. Second, it made me understand how to play the game in the future. I understood the power of diversification, which can reduce risk by up to 80% without reducing returns That is the starting point of Bridgewater. Since then, it has been a straight upward path. Because I learned this lesson. Writing these things down turns mistakes into learning experiences. As an investor, there will always be ups and downs. No one is perfect, not even Warren Buffett. But since then, my return rate has been about 11.8%, and there have been no years of significant losses, except for 2002 and 2020. I lost 13% during the COVID-19 period, but in other years, the maximum loss was 2%. Because I learned the power of diversification. A key point of diversification is: you can reduce risk without reducing returns. My motto is: "15 good, uncorrelated sources of income." If you design them to have roughly the same expected return and are uncorrelated with each other, you can reduce risk by about 80%, thereby increasing the "return-to-risk ratio" fivefold. This is the power of the "game plan." This is what helped me. Host: Did your father ever say that if he had invested that $4,000 in you back then, he would have made more? Dalio (laughs): He... uh, we are all doing pretty well, it’s fine. Host: Let's talk about debt. Your new book discusses the issue of national bankruptcy. So can a country really go bankrupt? Companies can go bankrupt, individuals can go bankrupt, but can a country really go bankrupt? Dalio: The way national debt operates is similar to individuals and companies, with two important differences: they can print money and they can take your money through taxation. What happens is you can think of it as the same. But let me explain— they print money to deal with problems. When faced with choices, they print money. So their "bankruptcy" is not a default, but rather devaluation. Dalio: Let me explain the mechanism in the book. If we compare the credit system to the circulatory system in our body, it transports nutrients, and these "nutrients" are credit, which is purchasing power. Dalio: If people use this portion of credit to borrow, but their income can repay this debt, we will have prosperity, a healthy system. Dalio: But you will see that as national income rises—largely due to human nature and political factors—politicians want to make people happy, and debt will rise, exceeding income growth. Dalio: Debt rises relative to income, just like "plaque" forms in arteries. Interest payments, like plaque clogging arteries, will squeeze out other consumption. Dalio: We can see interest rates and interest payments starting to crowd out other consumption. We can see this from the data. Dalio: Then, there are three main things—this is the key point I want to convey. Dalio: You will see this crowding-out effect; you will also see the supply and demand issue. In other words, for example, in the United States, we need to sell about $12 trillion in debt over the next year. Dalio: We have $1 trillion in interest to pay, and $9 trillion in principal to repay, and then we need to sell another $2 trillion because we have a budget deficit Dalio: So, this $12 trillion must be absorbed by the market. And you can look at who the buyers of this debt are. When you have a supply-demand imbalance, that becomes a problem. Dalio: But the way the government responds to this situation is ultimately—if you have this supply-demand imbalance, interest rates will rise. Dalio: And rising interest rates will depress asset prices, reduce economic activity, and so on. But central banks do not want this to happen. So what will they do? They will print money. Dalio: And when you reach the stage we are at now—we are very close—you have to borrow money to pay off the debt itself, that is a serious problem. Dalio: We have $7 trillion—I mean, this is the actual number for the country—the government spends $7 trillion a year but only brings in $5 trillion. That means spending exceeds income by 40%. Dalio: And they cannot cut spending because that spending is already insufficient, is basically fixed, and will continue to grow, compounding. We are currently at that critical point. Host: Well, let's look back at history. When this country was just founded, we relied on debt to pay for the costs of the Revolutionary War. Host: That famous agreement, Alexander Hamilton wanted the southern states to agree to help the north pay off its debt, which was about $70 million at the time. And the southern states had already paid off their debts, so they were certainly unwilling. Host: So they reached a compromise at a famous dinner in Wall Street—James Madison, Thomas Jefferson, and Alexander Hamilton. They reached an agreement: the federal government would take over the debt, in exchange, the capital would move from New York to the south, which eventually moved to Washington, D.C. Host: So we have had debt since the founding of the country, starting with $70 million. Has there ever been a time when the U.S. government had no debt? Dalio: Oh no, there has never been. I think it has almost never happened. Host: Maybe only Andrew Jackson? He hated debt and even dissolved the Second Bank of the United States, but that was the only time. Host: In recent decades, like after World War II, we have been running a deficit almost every year, right? Dalio: Almost every year. Host: Right, exactly. Host: Since World War II, we have almost always run a deficit, with very few years where the budget was barely balanced or had a slight surplus. Host: In the early 1990s, there was an agreement between Bill Clinton and Newt Gingrich, you might talk about it. They reached an agreement, and we actually had what was called a "budget surplus"—that is, income exceeded spending, which was very rare, in 1998. Dalio: We no longer have that problem. Host: No? Dalio: Of course, you can do that. Yes, well. Dalio: Now, to stabilize the debt-to-income ratio, you must reduce the budget deficit to about 3% of GDP Dalio: And we are now at 6.5% or 7%. Dalio: Okay, so that's 4%. They need to cut by 5%. If you look at many examples around the world, there have indeed been significant cuts of more than 5%. Dalio: How did they do it? There are three things that will affect the budget deficit: Dalio: Spending, tax revenue (not the tax rate, but the total tax revenue), and interest rates. Dalio: This is what I call the "3% three-part solution." Dalio: They must reduce the deficit to 3% of GDP. That would be a significant decrease, but they need to do it like they did back then, through a combination of increased tax revenue, reduced spending, and lower interest rates. Dalio: If we increase tax revenue by 4% and cut spending by 4%, these are not very large numbers, and this will naturally improve the budget deficit. Dalio: This way, interest rates will decrease, and a drop in interest rates of about 1% will bring the budget deficit down to around 3% of GDP. Dalio: Because the supply-demand relationship improves, lower interest rates will also lead to rising asset prices, which is beneficial for the economy, thus generating more tax revenue. Dalio: So we are now at a point—if we take this approach that I call the "3% three-part solution," it is possible to address the current issues. Dalio: If we do not do this and continue to go beyond this point, continuing to increase debt, creating this squeeze, and causing supply-demand imbalance issues, then we risk falling into a debt crisis and recession simultaneously. Dalio: If that happens, then due to the impact of the recession, the deficit will also increase, and politically, it will not be possible to raise taxes or adopt the "three-three-three" solution. Host: So your "3% solution" is: you want to reduce the deficit to 3% of GDP. Right? Dalio: Correct. Host: You want to achieve this through three ways: moderately lowering interest rates, cutting spending, and increasing taxes, right? Dalio: Yes, and to complete it within three years. Host: Like the "three-three-three plan"? Dalio: Yes, pretty much like that. Host: What are the chances of this plan succeeding? Dalio: **About 5%. Host (laughs): Well... Dalio: You've been to Washington; I was in Washington a few days ago. Dalio: Congress members will tell you: "This is a great idea, we wish we had thought of it, we want to do it." Dalio: But I tell you, what Congress members say to me is interesting: Dalio: That is, there is actually no disagreement among the two parties about what I just said. Dalio: It's interesting. They all agree that the deficit needs to be reduced to 3%. They all agree that this must come from these three aspects, and so on. Dalio: Then they say: But I can't say this. Dalio: I can't say this because we are now in an absolutist political environment. Dalio: If I say it, voters will want me to say "I promise not to raise any new taxes" or "I promise not to cut your benefits." Dalio: Yes, because of this absolutist demand, if you don't swear an oath, their voters will say: "Are you telling me you want to compromise with those people and raise my taxes? Or do you want to compromise and cut my benefits?" "Absolutely not, I don't want you to be a politician." Dalio: So they won't communicate what they truly believe. Dalio: I think many people in Washington are not saying what they really believe right now. Dalio: It's interesting because they say, "Please help us create a public opinion atmosphere where if you don't have a 3% budget deficit, that's irresponsible." Dalio: This way my voters will pressure me to do these things. Host: Okay, let's clarify the issue of total debt. How much debt does the United States actually have now? Dalio: The total debt is about $36 trillion. Dalio: If you look at net debt, it's about $30 trillion. Host: $30 trillion? Dalio: Net debt refers to the money we owe to ourselves. But if you look at the total, it's about $36 trillion. Dalio: But we have actually reached the debt ceiling now. Dalio: Before passing that "Big Beautiful Bill" and raising the debt ceiling, we were capped at $36 trillion, but in reality, we probably have about $38 trillion, because once that bill is passed, we can legally borrow more money. Dalio: It is growing very quickly. Host: So what's the difference between $36 trillion and $38 trillion? It's still a lot of money anyway. Host: Where did this debt come from? We did borrow a lot of money during World War II, but we eventually paid it back. When did we start owing so much debt? Was it around 2000? Dalio: Well, you mean the rate of increase, right? If we talk about the increase, debt has been rising, Dalio: but especially during the "COVID pandemic years" and afterwards, we increased it significantly. Host: So we started increasing debt, was it the Democrats who did it? Or the Republicans? Dalio: It was both sides together. Host: Each side has responsibility? Dalio: Yes, everyone does. Host: So now we are at $36 trillion, $38 trillion, no matter what the exact number is, it's still a lot. Host: What about our annual deficit? Dalio: The deficit is the part of the money we spend each year that exceeds our income. Host: You said our annual deficit is about $2 trillion? Dalio: Yes, about $2 trillion. Dalio: We basically have an annual income of about $5 trillion and expenditures of $7 trillion. Host: So why don't we just cut spending directly? Where is all this budget being spent? What percentage is defense spending? How much is welfare spending? What about others? Interest? Dalio: Let me give you some numbers, these are calculated by expenditure ratio, but I think you should look at the ratio of expenditure to income. 18:24 Dalio: But anyway, about 60% of the expenditure is what we call welfare programs: Dalio: It's like Medicare, Medicaid, veterans' benefits, etc. Dalio: These account for about 60% of the budget, but they account for about 85% of our income. Dalio: Then we also have to pay interest, Dalio: We pay about $1 trillion in interest each year— Dalio: Interest accounts for about 20% of our income and about 12% of budget expenditures. Dalio: Then we also spend about $950 billion on defense, which is close to $1 trillion. Dalio: If you add these up—these are basically all fixed expenditures—that's about 85% of the budget. Dalio: That's roughly 110% of our income. Host: So we are spending much more than we earn, right? Dalio: Yes. Host: Okay, so we have a few options now. Since we are spending so much money, why not cut welfare spending? Dalio: That's a very difficult thing to do. No one wants to see their Social Security benefits cut, right? Host: Then why don't we stop paying interest on the debt? Dalio: You can't do that. Host: Then why don't we give up defense spending? Dalio: We can't do that either. Host: Then let's cut the National Endowment for the Humanities and the National Endowment for the Arts? Host: But that wouldn't save much money either. Host: So how do we solve this problem? Dalio: Well, you can raise taxes; there are indeed many people in Washington who want to raise taxes. Host: But will they really raise them? It seems you haven't seen many people actually supporting tax increases, right? Dalio: Right, not that many. Host: Well, can the so-called "Big Beautiful" that's being talked about solve our problems? Or at least alleviate some of them? Dalio: It won't solve our problems. Host: Well, if that won't solve the problem, then how do we solve it? Dalio: We will solve it in the usual way, as is always done when a country is "essentially bankrupt." Dalio: They will take a series of measures: through currency devaluation and printing money to address this imbalance. Dalio: They will print money, devalue the currency, and create artificially low interest rates, Dalio: so that those holding bonds will accept an artificially low interest rate. Dalio: This is how Japan deals with its national debt, and we will adopt this approach as well. Host: So in other words, my grandchildren and those yet to be born will have to repay this debt, Host: actually with devalued dollars, is that right? Dalio: That's about right. Host: Will this happen soon? Dalio: Yes, I think they may not catch up with this "feast." Host: Alright. So the mechanism of operation is like this: you will see this dynamic process. Host: So pay attention to the value of the dollar. Dalio: Not only look at the value of the dollar relative to other currencies. Dalio: Also look at the value of the dollar relative to gold. By the way, gold is the world's second-largest reserve currency. Dalio: The first is the dollar, gold ranks second, Dalio: then the euro, and then the yen. Dalio: Gold is a form of currency. Dalio: Anyway, looking at it from this perspective, you will see the depreciation of the dollar's value. Dalio: Then you will see artificially suppressed interest rates, which is a means to achieve the goal. Dalio: What I worry about is if this happens during an economic recession— Dalio: This is the most likely scenario— Dalio: then you will see the budget deficit further expand, Dalio: and the conflicts among people will intensify. Dalio: So you certainly won't hear people saying during a recession: Dalio: "I want to raise taxes" or "I want to cut benefits." Dalio: You will see a very difficult social situation, which I think is political and economic. Supporter: Before we wrap up this discussion, I want to interrupt for a moment and say: "Listen, you really scared me a bit. But I need to make money; I'm an investor. How should I take advantage of what you just described—it scares me. Should I buy gold? Buy dollars? Buy euros? What should I do?" Dalio: I think, first of all, I don't want to give advice casually, but I will give you some of my thoughts from the perspective of "what is a safer investment." Host: You are a very famous investor, so I will probably listen to you, right? Dalio: Remember, I could be wrong too. First, look at the value of your portfolio in terms of inflation-adjusted value, not nominal value. And the safest investment you can buy right now is inflation-indexed bonds because you will get—it will be linked to inflation—you will receive a real return of about 2% above inflation, no matter what happens. So start with what is a safe investment. Dalio: Next, I think what you need to do is diversify your portfolio. We talked about the power of diversification. I don't want anyone to bet everything on one thing because I could be wrong. Dalio: Consider gold as a form of currency, and now central banks around the world are buying gold as a means of diversification. The price of gold is negatively correlated with most assets in the portfolio, and during extreme stress periods, you will find that gold performs well while other assets do not. In the past, this world treated gold as currency. So the way that world viewed things was different. They would use gold to measure prices. Dalio: And now because we have fiat currency, and we are used to it, we measure prices with currency and treat gold as the "measured object." But I think if you start to say gold is currency, a source of currency, and you own it, then it is part of diversification So it can diversify your investment portfolio. Dalio: From a prudent perspective, it is reasonable to allocate 10% to 15% of your portfolio to gold. So, if you invest some money in inflation-indexed bonds and some in gold, that would make a diversification adjustment to your existing portfolio. Dalio: These are the overall suggestions I would give. This won't put you in a higher risk position; rather, it will place you in a safer position. That is to say, this is not an aggressive bet, but a way to reduce the risk of your existing bets, viewing your portfolio from the perspective of real purchasing power. People have liked gold for thousands of years, and it seems they still like gold now. Host: Gold prices are rising; why do people want to own gold during such times? Dalio: Since 1750, 80% of the world's currencies have disappeared, and those that remain have experienced severe devaluation. This is one of the reasons why gold has long been a means of storing wealth. There is a saying that gold is the only asset that does not represent someone else's debt. This means you don't need someone else to pay you. In the world we are currently in—this is also evident internationally—everyone is worried about sanctions and concerned about "others taking away gold." Central banks around the world are worried that something similar to what happened with Russia might occur. Therefore, they are diversifying their holdings. This, in turn, creates its own dynamic. Because once they start converting—they are indeed converting—towards gold instead of bonds, this will, in turn, affect the supply-demand balance issue we just discussed, namely the supply-demand balance of fiscal deficits. This means there could be sales of gold, further worsening the supply-demand balance of bonds. Dalio: In the past, the U.S. dollar was backed by gold; the U.S. government used to say: If you don't like these paper bills, we can exchange them for gold. Host: But eventually, we terminated that. We probably won't return to that system now, right? Dalio: Probably not. But if you look at these gold cycles—you will find that, due to currency devaluation, people begin to lose confidence in the fiat currency system. Over time, this has often happened in history: you print a lot of money and then use that cheap money to pay off debts, but then no one wants to hold that currency anymore, so they will re-link the currency to gold. So it is possible to see a situation where gold is re-linked to currency, but that is a long way off. Dalio: Since the beginning of this year, the value of the dollar against a basket of currencies has fallen by about 10%. Many people are worried that this situation will continue and may continue to devalue. Some say this might not necessarily be a bad thing because the things we export can be cheaper and easier to sell overseas, increasing exports. Host: But if people are worried about the devaluation of the dollar, what would you suggest they do? Buy other currencies? Or buy some non-dollar-denominated assets? Dalio: I think this scenario looks very much like what you just mentioned about the 1970s. I remember I was interning at the New York Stock Exchange on August 15, 1971, that day Richard Nixon went on television and said in a very "gentle" way: This is a remarkable move, but what you think you have—gold is real money, what people thought was money at the time was actually like checks in a checkbook. And he said, "You won't get gold, but you can continue to hold these checks." From that moment on, we entered the 1970s. That was a period of "stagflation." Dalio: What we need to worry about most now is the "stagflation environment." Because all currencies were depreciating at that time. So when we talk about diversification, the problem we face is not just an American issue. Our problems are serious, but Europe has problems, Japan has problems, and China has problems. Because we relied on a bunch of promises—to turn these "dead assets" into currency, and now we find there isn't enough money to fulfill those promises. Host: So I would say, the question you asked—should we shift our money to other currencies? Dalio: Maybe. But other currencies don't want to appreciate too much. That's why I would say things like gold might be the best-performing "currency." Some people are worried about this, and you can tell us if this is realistic. In 1985, there was an arrangement called the Plaza Accords, where the U.S. government reached an agreement with other governments to depreciate the dollar, which was a legal but secret operation that no one knew about in advance. Host: Do you think such a situation could happen again now? Dalio: The U.S. government reaching an agreement with other governments to further depreciate the dollar again? Host: Or do you think this is unlikely today? Dalio: No, I think it's possible. Yes. It's interesting, looking back at history, you'll find that when governments are in a certain specific situation, they tend to do the same thing. So, such operations are possible. There could even be foreign exchange controls, in various ways—they will make things happen in different ways. Host: You didn't mention one point, historically, people have always wanted two types of assets as a store of wealth, one is gold, and another you might also say is silver, but mainly gold, the other is real estate. So if you're worried about paper money and its depreciation, why not just buy real estate and hold it long-term? Isn't that a good idea? Dalio: That's not a good idea. It's not a good idea, first of all, real estate is even more sensitive to interest rates than it is to inflation. In other words, if you say such an economic environment occurs, then real estate prices will decline in real value It is also a type of "asset," a fixed asset, and it is one of the easiest assets to tax. In other words, no matter which state you are in, taxing real estate is the easiest to operate, and they can always get money from it. So on this level, it is not an effective diversification tool. Dalio: Furthermore, if you want to move money from one place to another, real estate is fixed to the land and cannot be moved. Host: You have mentioned three aspects; let's talk about one aspect we haven't elaborated on: cutting government spending is very difficult—85% of the budget is almost locked in, making it hard to cut. Dalio: Raise taxes? Not many people are willing to raise taxes, and usually, the number of voters who support them is decreasing. Host: But what about "lowering interest rates"? Why doesn't the Federal Reserve Chairman say, "We should lower interest rates; this can help us save money—we are currently spending a trillion dollars a year on interest, all to pay off our own debt." "Why don't we just lower the interest rates? Just do it directly?" Dalio: Uh, there is the issue of "real interest rates"—one person's debt is another person's asset. So, if I push interest rates too low, I will weaken the market's desire to hold these bonds. In my view, if you go too far, you will lose the market's demand for these bonds. So, unless you operate as I just mentioned—like cutting 4% of spending, increasing 4% of tax revenue, and improving the fiscal situation—only then can you truly benefit. But if you forcibly lower interest rates, you are harming bondholders, which will lead them not to buy these bonds anymore, and then you may trigger a vicious cycle. Host: Alright, we now have some audience questions; let me read a few for you. This question I hadn't thought of before: "Can we solve the deficit problem by implementing 'term limits' for Congress? In other words, if you limit how many terms Congress members can serve, are they more likely to solve the deficit problem?" The idea is that because they no longer need to seek re-election, they can speak the truth and do the right thing. You didn't mention this in your book, but you probably don't think this method is really effective? Dalio: This... is a question. By the way, Plato discussed the issue of democracy in "The Republic." He said that when the public wants many things, the government is also forced to satisfy these desires, even if they are some irresponsible demands, the government usually meets them. So, that in itself is a problem. As for whether "term limits" are useful, I am also not sure. Host: Now everyone says that the solution to all problems is "artificial intelligence." "As long as we use AI, all problems can be solved." Can AI really help? Can we ask ChatGPT what we should do? What can AI do about this issue? Dalio: I don't know, you can try it out and ask ChatGPT what it says. I believe AI will have a huge positive impact on productivity. I hope it can truly bring about an increase in productivity. When I do economic scenario analysis, I assume its impact will be about twice that of other technological investments—like the internet, digital technology, and similar things. Even so, it is still not enough to solve our problems. Moreover, it will also bring about a "wealth redistribution" issue. One fundamental problem we currently face is the huge gap between income, wealth, and productivity. 60% of Americans read below a sixth-grade level. This determines that their productivity and income levels are very low. The top 10% of income earners pay about 76% of federal taxes, and they certainly have a corresponding proportion of income. But this also means that, for example, in large cities like New York, if you let some of these people "run away," say reducing the top 10% to 5%, you might lose 35% of your tax revenue. That's the reality. So I think, ultimately, there is only one way to go. Technology will help, productivity will help, but most importantly, it goes back to the basics. If you look horizontally across different countries or vertically across historical periods, you will find: first, you need to educate children well, so they have the ability, productivity, civic awareness, and can cooperate with others. Build a productive, united, and civic society, along with a good capital market and institutional environment. Then, return to the most basic principles: save and spend wisely—earn more than you spend, have more assets than liabilities, and maintain a healthy income statement and balance sheet. As long as you do these basic things—make most people productive, maintain social order, uphold the rule of law, and promote cooperation, then we will be fine. Host: Why don't you become a government official yourself? Have you considered becoming the Secretary of the Treasury, the Chair of the Federal Reserve, or running for Senate, to solve these problems in government? Have you thought about doing that? Dalio: That scares me a lot (laughs). Uh, let me say, I have the deepest respect and gratitude for those who dedicate themselves to public service and serve the country in such an environment. I think the current issue is not just a "leadership issue," but also a question of "can you still lead everyone forward." You can place very capable people in these positions, but our current environment is such that every decision is debated, torn apart, and people are constantly attacking each other. So this is a very difficult situation. Some presidents have set up commissions, saying these issues are too difficult to solve politically, so we establish a "commission made up of outsiders," who will make a recommendation, and then Congress just needs to pass it, or at least hope to pass it. Host: Do you think this commission system can still work? Like the Bowles-Simpson Commission during the Obama era Ray Dalio: When I say "the likelihood of this plan is very low," what I have in mind is such a scenario. I don't think it's very likely, but it's not impossible either. Next, they will go through the budget proposal. Then there will be a "continuing resolution" to maintain government spending. After that, they will reassess some matters. This could be regarding the budget for the fiscal year 2026. At that time, they will also calculate the issue of the Social Security Trust Fund, which is expected to be depleted by 2033, within that time window. At that point, everyone will be watching this matter, and people will realize that we will not have enough Social Security, and so on. Perhaps, right then, or after the midterm elections in 2026, we might see the emergence of a bipartisan commission. Host: I hope there will be such a commission, and they can truly address this issue. Dalio: What I worry about is that it might be too late by then. But maybe it won't be too late, maybe there is still time. So, a bipartisan commission is a direction worth pursuing. But as you said, we have had bipartisan commissions before, and most of them did not work. I don't know if we can establish a truly effective commission, but I hope this time it can succeed. Host: Alright, let's take a look at a question from an audience member—perhaps the one everyone is most concerned about: What do you think is the best investment method for a middle-class, risk-averse American? Dalio: An inflation index bond, also known as Treasury Inflation-Protected Securities (TIPS). Because it will guarantee you a real return, and I don't think you should speculate in the market. Because that's a zero-sum game, and you are likely to be the loser. In my view, the people in Washington always say, "If the situation were really that bad, the bond market would have collapsed long ago." And the people in the bond market say, "If the situation were really that bad, Congress would have acted long ago." So both sides are shifting blame, and no one takes action. Host: So the question arises, why hasn't the bond market collapsed despite the accumulation of so much debt over the years? Dalio: As they often say, I have experienced this situation many times. I did this analysis in 2007 and 2008, and I went to Congress, and the questions they asked me were the same as today. But at that time, we already had problems. Europe was the same; the same thing happened. This is actually a matter of supply and demand. There is a saying: "Everything develops slowly until it suddenly explodes." When the problem truly erupts, everything will happen with a "click" sound, immediately. Host: You wrote in your early books that when a country has the "only global reserve currency," it often tends to over-borrow. You mentioned that the Dutch did this with the Dutch guilder, the British did this with the pound, and now it's our turn with the dollar. So the question arises—when you have the only global reserve currency, do you ignore the risks, thinking you can borrow endlessly? Are you worried that eventually we will lose our reserve currency status because we borrowed too much—because other countries no longer want to hold dollars? Are you concerned about this? Dalio: Yes, I am concerned. Host: So what do you plan to do? Dalio: Speak about it, discuss it. Host: Let's give everyone a sense of optimism. We don't want people to leave feeling discouraged. So, uh, can you say something good about the economy, or some good things in our economic system? There must be some good things, right? Dalio: First of all, I could be wrong. — Well, that's a possibility, but it's a 1% probability. So... that's possible. Well, and... there are capabilities to address this issue. As I said, if you are worried, then don't worry; if you are not worried, then you need to worry. If we can have enough "concern," then there is still a chance to address this issue. Then, as an individual, you can diversify your investments and take some measures to protect yourself from the impact. Host: Okay, here's a question: as a 24-year-old young person, what can I do financially before I turn 30 to ensure that I and my family will succeed in the future? Dalio: You know, I remember when I was at that stage, I would ask myself: How long could I live without any income? You know, how long could my savings support me—months? Weeks? Years? And so on. Being able to think in this way and build up savings in that situation gives you financial independence. And also, save money for things that can improve your life, like improving your livelihood, buying your apartment, or enhancing your living environment. If you can diversify your investments, that's certainly better. But the most important thing is to be able to force yourself to save. I remember when I just bought my first house, I would think about how to renovate it, and I would force myself to save along that path. So, try not to waste money. Every year, I give my grandchildren a gold coin. I, I say... every Christmas and every birthday they get a gold coin. Then they understand: no toys, only gold coins. Host: No toys? Only gold coins? Dalio: Of course, they also get toys, and then they get gold coins. Then they will compare: where are the toys in a few years? Where are the gold coins? This way, they will understand the principle of long-term accumulation. I just want to say that I think saving is a very important thing, and then you need to know how to use savings with lower risk, such as investing in inflation-indexed bonds or diversified portfolios These are the basic things I would encourage that young person to do. Host: I mentioned that you grew up on Long Island, so you are an American citizen. But you have spent a lot of time traveling around the world, and now you sometimes live in the Middle East and sometimes in the Far East. How do people in the Far East view what America is doing? And how do they view America's actions in finance in the Middle East? Dalio: Around the world, including China and elsewhere, America has always been an admired country. Because it is a place where the best talents in the world converge, anyone can become a citizen, and anyone can feel welcome. You can attract the best talents, have a rule of law system, a capitalist system, and so on. But what I want to say is that now the whole world is concerned about these issues. So, the sentiment of concern is intensifying, and that is the main theme right now. Host: For those watching this program, they might say: I want to be the next Ray Dalio, build a huge hedge fund, achieve financial success, gain respect, and write bestsellers. What’s the secret? What should I do? Dalio: I think you need to make your work and your passion the same thing, and don’t neglect the part about making money. In other words, I don’t work for money, but I have a passion; I fell in love with the game of investing. I think you must integrate your work and passion, but you also have to pay attention to making money. Because if you don’t make enough money, that’s a problem too. I also don’t think the happiest people in life are the ones who make the most money. The correlation between happiness or the degree of happiness and income level is very low. Host: —You’re only telling me this now? Wow. We all know this… well, maybe I don’t. Dalio: What truly brings the greatest sense of happiness is a sense of community. Do you have a sense of community? Do you have friends? Are you integrated into that community? In short, my advice is: don’t overstate the power of money. You need to have enough money and pursue your passion. If you have enough money and your work is what you love, then it never counts as “work.” You’re not doing it for the money, and I’m not doing it for the money. Host: When you go to Washington and discuss these serious debt issues with government officials, they politely say they can’t say things in public that might affect their political future. Do you feel they should be more public-minded and more willing to speak the truth? Or do you understand the pressure they are under? Dalio: I understand the pressure they are under. That’s a definition of the reality of the environment. You know, people might hope—maybe I’m too idealistic—that they would say, “I must speak the truth.” They say it, and then they get voted out by the electorate. But I understand the reality of the situation. So the question is how do we deal with these things in reality. That’s also why you just said to “change societal thinking” so that the public can express their demands. Host: One of the most talked-about topics in recent months is “tariffs.” What do you think about tariffs? Are they good or bad from an economic perspective? Can they solve our budget problems? Because in that "Big Beautiful Plan," a lot of revenue comes from tariffs, which helps slightly reduce the deficit. Dalio: Tariffs... tariffs are not a bad thing. Throughout history, tariffs have been a major source of revenue for governments. And any form of taxation has its costs. For example, capital gains tax is not good, etc. Different types of taxes have different impacts. The key question is: Is it well implemented? What is its scale? Will it disrupt the entire process? They can indeed bring in a lot of revenue, meaning the government doesn't need to tax as much elsewhere. Dalio: We are now living in a different world, a world that is almost at war. We need to establish self-sufficiency. We cannot continue to rely on imports, nor can we continue to borrow money to meet import demands. Therefore, we need to develop manufacturing, how to establish manufacturing in the U.S., etc... These arguments have some merit. The key is: Are these policies well implemented, and are they applicable globally? Dalio: Of course, from a global perspective, tariffs are not an ideal means. Ideally, you want the least amount of efficiency loss. You would say, "Let those who are best at producing do so, and then we will distribute." But in the world we are in now, we must be realistic; we cannot continue to rely on imports, nor can we expect debt to sustain us. Host: Next year we will celebrate the 250th anniversary of this country. Are you optimistic about America's future? Or is the debt problem so severe that you are not optimistic? Dalio: I think it depends on the time dimension. We will go through these issues, but I believe we can cope. The key is how we get along with each other. But I believe we will get through this and come out on the other side. Host: When you meet with members of Congress or other government officials and talk to them about serious issues like debt and deficits, do they listen to you and then ask, "So how should I invest?" Have they ever sought your financial advice? Dalio: They usually don't ask that. What about at cocktail parties? Do people often ask you for investment advice? Dalio: Occasionally. Then let me ask you a question: What do they ask me? Host: Well... they don't ask me because I'm not as good at investing as you are. Host: But it's still pretty good for me. Most of them will ask me, "Do you know Ray Dalio?" Host: Ray, I want to congratulate you on your extraordinary achievements. You came from very humble beginnings, built yourself up from nothing, worked in the investment field for 50 years, established the world's largest hedge fund, and made significant contributions to university endowments and other institutional investors. You should be proud of everything you have achieved. I hope you can make some progress in Washington. I lived there for a while, and you know that making progress there is not easy. But I hope you will keep trying, and maybe some people will eventually say, "I don't care if I can be re-elected; I just want to do the right thing." I hope you can persuade them. Thank you very much Thank you. [Applause]