Trump says the United States can come out of 37 billions of dollars of debt. Ray Dalio’s debt cycle research does not say so fast
President Donald Trump’s assertion that US growth can learn debt echoes that Ray Dalio qualified the most dangerous phase of a debt cycle: when leaders confuse prosperity with immunity.
In an interview with One America News Thursday, Trump underlined his “big and beautiful bill” which locks and widens the tax discounts of his first mandate while adding new deductions on advice, overtime and social security income for the elderly. Combined with his last series of prices, Trump argued that the package will offer both “record growth” and an unprecedented tax windfall.
“We become such a rich, so powerful country,” he said. “With the type of growth we have now, the debt is very low relatively speaking. You get out of this debt. ”
Real GDP increased to a solid annualized rate of 3.8% in the second quarter of 2025, but the image of the debt is not “very low”. The raw federal debt is still around 37.4 dollars, and the debt / GDP ratio is approximately 100% for 2025, according to Treasury and CBO linked to dashboards.
Price receipts are highly up this year, but estimates have about $ 165 billion by August and around $ 300 billion on an annualized basis, well below the trillion necessary to reimburse the debt.
In addition to that, Trump also suggested that the government could use pricing income to send “distributions” of the Americans up to $ 2,000, which would go into consumer pockets instead of helping to compensate for budgetary deficits.
But Dalio, who studied dozens of major debt cycles, wrote in his 2018 book Principles to navigate the major debt attacks That during booms, “loans support spending and investment, which in turn supports income and prices of assets”, temporarily pushing growth “above the constant growth of the productivity of the economy”. But that cannot last, he warned-“In the end, the income will fall below the cost of loans.”
Elsewhere, he added that debt charges are only easy when “nominal income growth is higher than nominal interest rates”, but too many risks of recovery “unacceptable inflation and the drop in currencies”.
The billionaire founder of Bridgewater Associates warned against leaders celebrating prosperity as proof that the lever effect no longer matters, even if the debt discreetly exceeds income. For Dalio, this rhetoric is the brand brand of a debt cycle at a late stage, before reality is introduced.
Dalio De Débt de Dalio Warning
Dalio has spent decades studying how countries borrow, explode, then distress under the weight of their obligations. Looking at nearly 50 major debt cycles – from 2008 to the 2008 crisis – he saw the same debt growth scheme in the early stages, but ultimately debt itself increases more quickly than the necessary income to serve it.
“The debt attacks generally occur because the debt and debt costs increase more quickly than the necessary income to serve them,” wrote Dalio. The decision -makers can stretch the party by reducing the rates, but “when this happens, deleveraging begins”.
The real danger, in Dalio’s account, is not only in the debt itself but psychology. Bubbles are formed because the increase in asset prices and higher income convince people they are richer than they really are. They spend more, borrow more and take greater risks.
“In the first stage of the bubble, the debts increase more quickly than income … The borrowers feel rich, so they spend more than they earn and buy assets at high leverage prices.”
In the United States, the debt held by the public should also go from around 100% of GDP in 2025 to 118% by 2035, according to CBO forecasts, which means that debt increases faster than the underlying economy. Meanwhile, CBO affirms that the government’s net interest costs will also continue to grow as part of GDP.
This is the scenario that Dalio warns, whether the interests of interest exceed growth rates, growth can no longer carry the burden of the debt as Trump supposes, because growth is vulnerable to changes in rate, inflation or economic cycle.
The mathematical problem
Admittedly, Dalio’s frame stresses that not all debts are created. Borrowing for investments that generate income can be independent. But borrowing to finance consumption or growth in securities is not.
In the best of cases – a “beautiful deleverage”, as Dalio calls it – governments balance fiscal and monetary policies so that growth exceeds the costs of interest, but without breaking into the runaway inflation.
It is a narrow path. Too much stimulus and you trigger the inflation or the weakness of the currency. Too much austerity and you trigger a recession. The type of permanent tax reductions and tariff stimulus that Trump is promising does not easily correspond to this balance.
Dalio also warned that the most misleading signals approached the summit, where easy credit increases expenses, asset prices are climbing, unemployment drops.
Today, asset prices are at record or close heights (the main indices are reaching new heights of all time this week) and unemployment remains low at 4.3% in August.
“When the limits of debt growth in relation to income growth is achieved,” wrote Dalio, “the process works upside down … a vicious and self-reinforced contraction.”
Trump insists that thousands of thousands of new investments flow, the trade deficit shrinks and that the nation is enough to consider sending checks.
“No one thought it was possible to do it quickly-except me,” he said.
But Dalio’s work suggests that it is exactly the mentality that causes trouble to countries. Believing that the debt does not matter because growth will take care of it is the last step in the cycle, when optimism goes from the advance on reality. And when the illusion breaks, the “beautiful” part of deleveraging rarely lasts.
As Dalio said: “When the delivery promises of money (that is to say, debt) can no longer increase compared to money and credit, the process works on the other hand and deleveraging begins.”
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