Ray Dalio says the Japan debt story is about to repeat in America, and Japanese bondholders lost most of their money the first time. He wants investors out of government bonds and into gold and Bitcoin.

The Bridgewater Associates founder made the case on Friday. He puts a US debt crisis three years away, give or take two, unless Washington changes course.

Ray Dalio Japan Debt Losses Are the Real Warning

Most coverage led with his three-year clock. However, the harder evidence sits in Japan, where this process already ran its full course.

Start with 2013. That March, the Bank of Japan owned 11.6% of all Japanese government bonds. By March 2023, it owned 53.3%.

The central bank printed money and bought that debt because private buyers would not. That is the exact step Dalio warns about.

In turn, bondholders paid for it. By his math, Japanese government bonds lost 51% against dollar debt after 2013. Against gold, they lost 76%.

Meanwhile, the bill is still arriving. Japan’s four biggest life insurers now sit on roughly $96 billion in paper losses on government bonds.

America’s Debt Bill Is Twice Its Income

Dalio treats the US government like a business. That makes the arithmetic easy to follow.

Washington will collect about $5.5 trillion this year. It owes roughly $1 trillion in interest. It must also refinance another $10 trillion of maturing debt.

Together those payments reach about $11 trillion. That is double what the government takes in.

Separately, independent numbers support the strain. The Congressional Budget Office (CBO), the nonpartisan agency that scores federal spending, puts this year’s deficit at $1.9 trillion.

That equals 5.8% of gross domestic product (GDP). CBO also pegs net interest at $1.039 trillion. Debt held by the public sits at 101% of GDP, and reaches 120% by 2036.

“I am confident that the government’s financial condition is at an inflection point. If this is not dealt with now, the debts will build up to levels where they can’t be managed without great trauma,” Ray Dalio, founder of Bridgewater Associates, in a LinkedIn post.

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In response, his fix cuts the deficit to 3% of GDP. He points to one American precedent that worked.

The government ran a deficit worth 4.6% of the economy in 1991. By 1998, it ran a surplus instead. Historically, though, that swing needed spending limits, tax rises, and falling rates together.

Gold and Bitcoin Take the Bond Market’s Pain

Markets moved his way this week. The 30-year Treasury yield closed at 5.23% on Thursday, after touching 5.31% on August 17.

Meanwhile, total federal debt crossed $40 trillion. Treasury Secretary Scott Bessent answered by doubling long-dated debt buybacks to at least $4 billion per operation, running from September 9 to November 4.

Dalio therefore reads that response as a symptom rather than a cure.

Hard assets caught the money leaving bonds. Gold traded at $4,604 an ounce on Friday, its best level since May. The metal capped a near 5% week at a three-month high. Bitcoin (BTC) traded near $77,502, up 6.4% in a day. Its market value stands at $1.55 trillion.

“I expect non-government-produced monies like gold and Bitcoin to do relatively well.”

Ray Dalio wrote that in the same post. His allocation advice stays specific. Underweight bonds, hold 10% to 15% of a portfolio in gold, and add a small bitcoin position.

One caution sits inside the trade. Long-run research on the best currency to save shows gold and bitcoin doing different jobs, not the same one.

The next test comes on September 9, when the larger buybacks begin.

Source: BeInCrypto