The past week, the U.S. has been treading dangerous territory after hitting the national debt ceiling of $31.4 trillion. Lawmakers on both sides of the aisle are arguing about how to proceed, but if something doesnt change soon, the government wont be able to pay its bills.
Treasury Secretary Janet Yellen has spoken several times about taking drastic measures, but it wont be easy to delay the impact of doing that. And Yellen said last Saturday that a potential default on the debts could mean a self-imposed calamity for the global economy.
While all that might sound like a crisis worth worrying about, billionaire investor and founder of major investment management firm Bridgewater Associates, Ray Dalio, thinks otherwise. He called the debt ceiling a farce in a LinkedIn post Wednesday, noting that there is no real debt limit.
Its a farce that works like a bunch of alcoholics who write laws to enforce drinking limits, and when a limit is reached, they do a farcical negotiation that temporarily eliminates the limit which allows them to have the next drinking binge until they reach the next limit at which time they go through the next farcical negotiation and continue to binge, he wrote.
Dalio also pointed out that this would be the 79th time since 1960 that the debt ceiling was reached and was later raised or suspended. He went on to say that most people agreed that the U.S. would not fall into default, raising a question about whether its good or bad that the U.S. can easily get around its debtafter getting in its own way first.
The investor went on to argue that the financial piping of the government works much like any other organization except for two things: The government can print its own money and also take money from one group of people to give it to another through the debt markets.
Because money and debt are not limited, those who make the decisions on how much to spend on what dont look at how much money they have to spend and then prioritize what they should spend it on, he wrote.
Disagreements over the debt limit in 2013 led to a government shutdown. Congressional Democrats and Republicans struggled to reach a consensus, costing the nation billions of dollars. Although it was not a total global catastrophe, the U.S. did suffer a downgrade by credit rating agencies and drop in consumer confidence.
Right now, President Joe Biden and Republican House Speaker Kevin McCarthy have been at loggerheads over how much to raise the current debt ceiling. Biden wants a no-strings-attached deal, and McCarthy holds that if families and businesses have to live within a budget Washington must as well.
The extraordinary measures that Yellen has spoken about that are currently underway include holding back investments on retirement plans for federal employees and suspending the sale of certain securities. They will last until the summer, and then lawmakers will have to come up with a new plan.
Dalio stepped down from his leadership role at Bridgewater Associates last October.
He frequently writes his commentary on the economy, finance and geopolitics. Previously, he wrote about how the U.S. and China were dangerously close to a full-blown nuclear war and spoke about how the American economy was reeling from several sources of economic pain.
Learn how to navigate and strengthen trust in your business with The Trust Factor, a weekly newsletter examining what leaders need to succeed. Sign up here.
