The United States could endure a serious economic crisis within the next five years. At least, according to Ray Dalio. Dalio is an extremely successful investor. He is the founder of Bridgewater Associates—perhaps the world’s most successful hedge fund management company—and has served as both its CEO and Chief Investment Officer.
In his book Principles for Dealing with the Changing World Order, Dalio observes the world’s last 500 years and discerns what economic and geopolitical patterns emerge. Using this knowledge, Dalio created the “Big Cycle template,” which describes these patterns.
One key factor that impacts the “Big Cycle” is the economy and debt of countries. When a country spends more money than it takes in, it is in debt. A country supports this debt by borrowing money through bonds and by printing money. Dalio explains that there are many smaller debt cycles that occur within the longer debt cycles that he refers to as big debt cycles. Almost every country experiences these smaller debt cycles, and they last for approximately five to ten decades. Each cycle ends with an economic crisis. Political, technological, and ecological factors can all lead to a country increasing its debt deficit and pushing the debt cycle forward.
Currently, the US is in a lot of debt—around 30 trillion dollars. Every year, this debt increases because the US spends more money than it makes. and it has to pay interest to its creditors from previous loans. To resolve this issue, why couldn’t the U.S. possibly spend less money or tax more?
In an article written in the Washington Post, William Gale discusses why spending less money would not work: “Almost 70 percent of federal spending goes to Social Security, health care, defense and interest on the debt. Spending cuts will have to come from those areas. We can’t unilaterally cut interest payments—that’s called defaulting. And the other programs are extremely popular.” Additionally, raising taxes—like spending less money on the aforementioned programs—would be highly unpopular.
Over the course of a big debt cycle, as described by Dalio, a country accumulates more and more debt until the amount of debt simply becomes too much for the country to handle. Dalio believes that the US is near this point in the cycle. When this point is reached, entities will only be willing to loan the US money if the US gives high interest rates. If the US does increase its interest rates, that would hurt the economy; for example, it would be difficult for families to buy houses and for people to find jobs.
If the government does not drastically increase the interest rates, they are left with two options: defaulting ( not paying its creditors) or printing more money. In the past, when countries have been presented with this choice, they have almost always chosen to print more money. If this happens, the value of the dollar will plummet. This will lead to inflation and a sharp decline of the economy.
If this crisis occurs, CA will be deeply affected. Families will find it harder to pay tuition and fewer people will be willing to make large donations to the school. This economic disaster could come very soon.