Ray Dalio is the Founder of Bridgewater Associates, where he serves as a CIO Mentor and remains an active member of the firm’s board.
On Tuesday, while speaking during the Abu Dhabi Finance Week (ADFW) in the United Arab Emirates, Dalio warned of an approaching global debt crisis driven by unsustainable levels of borrowing in major economies like the U.S. and China. He believes this could lead to a significant drop in the value of fiat money. Dalio advised investors to avoid debt-based investments such as bonds and instead focus on tangible assets like gold and Bitcoin. He encouraged a long-term perspective on economic trends rather than reacting to daily news.
Although Dalio was once skeptical about Bitcoin, he now sees it as a reliable asset, comparable to gold. He suggests allocating 1-2% of investment portfolios to Bitcoin as a hedge against inflation, while still promoting diversification.
On April 18, Dalio published a LinkedIn post titled “Do You Have Enough Non-Debt Money?, ” in which he began by defining good money as being both a good medium of exchange and a good storehold of wealth that is widely accepted around the world. He identified the dollar, euro, yen, and Chinese renminbi as the most globally recognized and accepted currencies, noting that they are all debt-backed monies. Dalio explained that when you hold these monies, you are holding debt liabilities, which are promises to deliver you money.
However, Dalio cautioned that when there are significant risks of debts not being paid back or being paid back with money of depreciated value, the debt and the money become unattractive. He pointed out that when a government has too much debt to be paid, its central bank is likely to print money, leading to inflation and the devaluation of the currency.
In contrast to debt-backed currencies, Dalio highlighted gold as a non-debt-backed form of money. He compared it to cash, except unlike cash and bonds, which are devalued by risks of default or inflation, gold is supported by risks of debt defaults and inflation. Dalio noted that gold is the third-most-held reserve currency by central banks, surpassing the yen and renminbi.
Dalio also acknowledged cryptocurrencies as another form of non-debt money, while suggesting that some people might argue that gems and art act similarly due to their non-debt nature, portability, and wide acceptance as storeholds of wealth.
According to Dalio, when the financial system is functioning well, with borrower-debtor governments meeting their obligations without resorting to money printing and devaluation, debt assets and other financial assets are good to hold. However, he emphasized that when debt and inflation crises arise, gold becomes a valuable asset to own. Dalio stated that this is the main reason that gold is a good diversifier and why he has some in his portfolio.
