Hedge fund legend Ray Dalio warns the US will suffer a 'debt crisis' - and predicts an economic slump

Ray Dalio.

Reuters / Ruben Sprich

• Ray Dalio is worried about America's borrowing binge and economic growth cooling.
• The billionaire investor warned of a "debt crisis" and a "meaningful slowing of the economy."
• Dalio has previously flagged interest rates, civil unrest, and geopolitical tensions as concerns.

Ray Dalio rang the alarm on the ballooning federal debt, and warned the US economy is set to slump, in a CNBC interview on Thursday.

The billionaire founder of Bridgewater Associates, the world's largest hedge fund, flagged America's record $33 trillion of debt as "risky" during a fireside chat at the Managed Funds Association, CNBC reported.

"We're going to have a debt crisis in this country," Dalio said, pointing to an imbalance between the massive scale of public borrowing and insufficient demand for government bonds.

Dalio, an official mentor to Bridgewater's three co-chief investors, cautioned the mountain of federal debt and other challenges could mean US growth dwindles to zero.

"I think you're going to get a meaningful slowing of the economy," he said.

The veteran investor has previously flagged America's financial challenges —a historic debt pile, higher interest rates, and quantitative tightening — as well as political infighting and fraught relations with Russia and China, as a "perfect storm" for the country.

Dalio has also noted that high debt levels could spark a "balance sheet recession," where growth cools because people and companies focus on paying off loans instead of spending and investing.

Several experts have issued even bleaker outlooks, where they've predicted stocks and house prices will tumble, and a full-blown recession will occur. Their fears have mounted since inflation hit 40-year highs last year, spurring the Federal Reserve to hike interest rates from almost zero to over 5% in the past 18 months.

Higher rates encourage saving over spending and raise borrowing costs, which can relieve upward pressure on prices. But they can also slash the appeal of risky assets like stocks by raising bond yields, pull down house prices by lifting mortgage rates, hammer debt-reliant sectors like commercial real estate, and even trigger recessions by crushing overall demand.

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