Bridgewater Associates co-Chairman Ray Dalio said Tuesday that the U.S. will have little choice but to raise taxes in the coming years to offset its mounting liabilities and debts.
Dalio, who founded the hedge fund in 1975, told CNBC from the Greenwich Economic Forum that the national debt, pension liabilities and health-care liabilities will ultimately have to result in higher taxes since defaulting isn’t an option.
“We’re dealing with almost a currency issue, longer term, in terms of what is the value of currency when those liabilities – not only the debt liabilities, but the pension liabilities and the health-care liabilities, which are like debt. They are promises that have to be paid – they will either be paid by higher taxes or they’ll be not paid and defaulted on,” he said.
“I don’t think they will be defaulted on,” he added. “I think by-and-large they’re going to be paid, but if they raise taxes too much, then it changes the nature of that economics.”
The warnings about potential debt hazards come as the total federal debt outstanding has surged to $22.9 trillion, or about 103% of GDP. Excluding intragovernmental obligations, debt held by the public is $16.9 trillion, or 78% of GDP.
That total, thought to be more important as an economic burden, is likely to rise to 105% by 2028, according to Congressional Budget Office projections. However, the CBO notes that the numbers are subject to revision depending on how government policies play out.
The debt bubble includes traditional levels of public debt like bonds but also financial debt and all its complexities as well as future obligations for so-called entitlement programs like Social Security, Medicare and public pensions.
The U.S. Treasury said last month that the federal deficit for fiscal 2019 was $984 billion, a 26% increase from 2018 but still short of the $1 trillion mark previously forecast by the administration.
Dalio gave a relatively innocuous view on the broader financial market, saying “I don’t think it’s a breakout and I don’t think it’s particularly overbought either.”
Bridgewater, the world’s largest hedge fund, oversees about $160 billion in assets.