Billionaire investor Ray Dalio, founder of Bridgewater Associates and author of Principles for Dealing with the Changing World Order, has repeatedly warned that the world is now in the late stages of a major debt cycle — and that the next financial shock is more likely to come from sovereign debt than from Wall Street excess.
In an October 2025 interview, Dalio said the U.S. is facing “very, very dark times” driven by record federal debt, deep political divisions, and rising geopolitical tension. He warned that surging public debts, rising interest costs, and growing reliance on central-bank balance sheets are the key late-cycle risks investors should be watching.
His caution comes as the Federal Reserve announced it will end quantitative tightening on Dec. 1, 2025, maintaining its balance sheet near $6.5 trillion and reinvesting agency-security income into Treasury bills — a move officials call a “technical maneuver.”
Dalio has described this policy pivot as a turning point. On X, he wrote that the Fed’s balance-sheet expansion “would not be a ‘stimulus into a depression’ but rather a ‘stimulus into a bubble’”— a late-cycle dynamic he has tracked across centuries of financial history.
In his Big Debt Cycle framework, economies expand as credit grows faster than income. Eventually, debt burdens become unsustainable, forcing governments and central banks to print money to service obligations. The result, he says, is a “melt-up” in asset prices followed by a painful correction when confidence erodes.
That pattern may already be visible today:
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U.S. public debt has exceeded $38 trillion
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Annual interest costs are now above $1 trillion, surpassing the defense budget
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The equity risk premium — the gap between stock earnings yields and 10-year Treasury yields — has narrowed to about 0.4 percentage point, a sign of stretched valuations.
Dalio’s warning coincides with powerful market rallies. Gold prices (GCZ25) have climbed above $4,000 per ounce, reaching multiple all-time highs, while global gold demand in Q3 2025 hit 1,313 tons, the highest on record, as central-bank purchases rose 10% year over year.
On X, Dalio explained the basic mechanics linking inflation and gold:
“All things being equal, the higher the inflation rate, the more gold will go up because most of inflation is due to the value and buying power of other currencies going down due to their increased supply, while there isn’t much increased supply of gold.”
Bitcoin (BTCUSD) — which Dalio has previously described as a form of “digital gold” — has also been in focus amid expectations that easier policy and renewed liquidity will continue to lift hard assets.
However, Dalio and other macro investors caution that these gains could precede an eventual reversal. As he has written repeatedly, late-cycle liquidity injections often inflate bubbles before they burst.
Dalio’s long-term research shows that debt crises often migrate from the private sector to the public sector. After 2008’s mortgage-driven crash, he argues, the leverage problem moved onto government balance sheets through stimulus and deficit spending.
In an October interview, Dalio said the U.S. government’s rising debt and polarization are now the greatest threats to financial stability, not corporate risk-taking. He emphasized that when borrowing consistently outpaces income, the eventual adjustment can come through either default or devaluation.
That concern is amplified by today’s macro backdrop: inflation remains above 3%, unemployment sits near 4%, and GDP growth hovers around 2% — conditions that would normally call for tighter, not looser, policy.
Despite the grim outlook, Dalio’s message is ultimately about preparation, not despair. In a recent podcast interview, he cited a Chinese proverb: “A smart rabbit has three holes.” From a business perspective, Dalio says the lesson is to diversify and stay flexible — financially, geographically, and professionally — so you can adapt when conditions change.
To that end, Dalio recommends that investors and households:
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Diversify internationally rather than relying solely on one currency or economy.
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Own real assets such as gold, commodities, and inflation-linked securities that can hold value if currencies weaken.
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Maintain flexibility with both capital and career options.
Dalio also often repeats a principle that guided his own career: “Pain plus reflection equals progress.”
Dalio’s warnings focus on one central theme: the sovereign debt problem that now defines advanced economies. The U.S., U.K., and other major powers are carrying record deficits, rising interest costs, and growing dependence on central-bank support.
If his historical models hold true, the late-cycle stimulus that investors are cheering today could set the stage for tomorrow’s reckoning. The next financial crisis may not start on Wall Street — it may begin in Washington, as the bond market finally questions how long governments can finance themselves at scale.
On the date of publication, Barchart Insights did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com
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