Ray Dalio says Bessent move is sign that a debt crisis is getting closer; recommends gold and bitcoin

Treasury Secretary Scott Bessent's debt buyback announcement this week fits into a broader pattern that can signal a forthcoming crisis, according to billionaire investor Ray Dalio.

The Bridgewater Associates founder said Bessent's plan to increase government debt purchases may portend trouble for the U.S. economy. Coupled with the Japanese government reducing its U.S. bond market exposure and surging long-dated American bond yields, Dalio said investors may want to prepare their portfolios for increased risk by owning cryptocurrencies and gold.

"I am confident that the government's financial condition is at an inflection point," Dalio wrote in a LinkedIn post published Friday. "If this is not dealt with now, the debts will build up to levels where they can't be managed without great trauma."

U.S. 30-year Treasury yield, 5-day

Dalio noted that the Treasury Department has "only limited capacity" to buy back bonds. Bessent told CNBC on Thursday that his team was going to "make a market" and that the purchases would likely top $4 billion.

Burgeoning deficit

The U.S. is spending about 40% more than it's bringing in, resulting in the burgeoning budget deficit, Dalio said. The U.S. budget deficit topped $432 billion in July, but Bessent told CNBC that it's likely peaked under President Donald Trump's administration.

Bessent said in the interview that a team was looking at ways to shrink spending by hundreds of billions of dollars. But Dalio said there is "very little ability" to do so given that it is either committed or considered essential.

After years of overspending, Dalio said total debt now dwarfs what the U.S. brings in each year. If the U.S. government was a business, Dalio said debt service payments would come in at roughly $11 trillion — about 200% of annual revenue.

Dalio, 77, warned the cost of repaying principal and servicing the debt will only grow over time.

Three-prong approach

To solve this, Dalio said the U.S. needs to carefully employ a three-part strategy to get the budget deficit down to 3% of gross domestic product.

First, Dalio said the U.S. government needs to reduce its spending. Second, he said tax revenue needs to be raised. Finally, the New York native and Harvard Business School alumni said lower interest rates were needed.

"All three need to happen concurrently so as to prevent any one from being too large," Dalio said. "If any one is too large, the adjustment will be traumatic."

Dalio cautioned against ramming through these adjustments by "force." For instance, "it would be very bad if the Federal Reserve unnaturally forced interest rates down," he said.

Dalio said it's important to to take steps now, while the economy is healthy. An economy in recession requires increased government spending, he said.

Dalio said the exact timing of a debt crisis can be swayed by variables ranging from military conflict to political change. On its current trajectory, the U.S. could enter such a crisis in as early as one year or as late as five. "My guess, which I suppose will be a bad one, is that it will come in three years, give or take two, if the course we're on is not changed."

To prepare, Dalio recommended investors are underweight debt assets, such as bonds.

As much as 10% to 15% of a portfolio could land in gold, as well as "a bit" of bitcoin, the hedge fund founder said.

Dalio's post came at the tail end of a volatile week for U.S. financial markets. Rising long-term Treasury yields have pressured stocks, leading the S&P 500 to snap a a three-week-long advance.