The Blubber

Ray Dalio, billionaire investor and founder of Bridgewater Associates, warned on Monday that the recent Moody’s downgrade of the U.S. sovereign credit rating fails to fully capture the real risks facing U.S. Treasury securities. According to Dalio, the credit agency is overlooking a critical threat: the federal government resorting to money printing to manage its mounting debt burden.

“Credit ratings downplay true credit risks because they focus only on the likelihood of default,” Dalio said in a post on X, formerly Twitter. “They don’t reflect the bigger danger—that governments could print money to meet their obligations, which ends up eroding the value of what bondholders actually receive.”

On Friday, Moody’s lowered the U.S. credit rating by one notch, from Aaa to Aa1, pointing to rising fiscal deficits and the growing cost of interest payments as key concerns. The downgrade makes Moody’s the final of the three major ratings agencies to strip the U.S. of its top-tier rating.

Markets reacted swiftly. On Monday, U.S. stock indexes declined, and Treasury yields climbed, with the 30-year bond yield reaching 4.995% and the 10-year note yield rising to 4.521%.

“For investors who care about preserving the value of their money, the risks tied to U.S. government debt are more serious than the ratings suggest,” Dalio added.

Meanwhile, Dalio’s firm, Bridgewater Associates, has seen a notable decline in assets under management. As of early 2024, assets had fallen to $92 billion, down from a peak of $150 billion in 2021, according to a March report by Reuters.