Ray Dalio warns Moody's downgrade fails to reflect true risks of U.S. Treasurys

In the United States, billionaire hedge fund manager Ray Dalio expressed significant concern over the recent downgrade of the U.S. credit rating by Moody's, which occurred earlier when the agency reduced the rating from Aaa to Aa1. This change was attributed to the increasing budget deficit and rising interest payments on the national debt, which are crucial factors causing anxiety for investors and policymakers alike. Dalio stated that credit ratings tend to underestimate true risks because they evaluate only the likelihood of default rather than considering inflationary risks posed by the government's potential to print money in lieu of paying debt. He believes that this perspective may mislead investors regarding the actual value of their holdings in U.S. Treasury bonds. The implications of this vary but suggest that those holding government debt could suffer from the depreciating value of money rather than a direct loss of funds. Following the downgrade, U.S. stock markets reacted negatively, as seen by a notable increase in Treasury bond yields indicating a growing concern among investors about the country's fiscal health. In a broader context, Dalio's views extend to economic tensions involving China, emphasizing that the nation continues to enhance its technological capabilities and competitiveness, factors that could potentially lead to a significant conflict between the U.S. and China. He argued that restructuring trade agreements is critical for addressing the rising American deficit and improving the nation's economic resilience. Dalio's insights greatly reflect the current economic landscape and are a call for serious consideration of the long-term implications for both U.S. fiscal policy and foreign trade relations.