Dalio calls for bipartisan cooperation to defuse the US “debt bomb” to improve the balance between supply and demand of US debt and reduce interest rates

The Zhitong Finance App learned that the founder of the Qiaoshui Foundation, Ray Dalio, pointed out in an article that the Republican Party and the Democratic Party have realized that they need to reduce the fiscal deficit through “each side making concessions”. The billionaire said the move would improve the balance between supply and demand for US debt, thereby reducing interest rates.

Dalio said, “Both parties understand that they need to reduce the deficit through joint concessions between the two sides. But now that political positions are becoming more extreme, lawmakers fear that if they adopt this apparently optimal balance strategy, voters and parties will oust them. In my opinion, this is a tragedy.”

The non-partisan agency, the Congressional Budget Office estimates that if the Senate version of the Trump Tax Reform and Spending Act is passed (the bill will face a series of amendments on Monday), it will increase the US deficit by nearly 3.3 trillion US dollars within 10 years.

BlackRock also warned on Monday that growing US government debt may reduce investors' interest in long-term US bonds and the US dollar. The asset management giant pointed out in its fixed income outlook for the third quarter that US President Trump's tariff policy has caused market fluctuations this year and raised questions about the dollar's status as a reserve currency.

While concerns about de-dollarization are considered extreme, BlackRock's fixed income director said the increase in government debt could exacerbate this risk. They wrote, “We have always emphasized the danger of the US debt situation. If left unchecked, we believe that debt is the biggest risk facing the US in its 'special position' in the financial market”.

BlackRock pointed out that higher government debt could disrupt the typical correlation between long-term US Treasury yields and US monetary policy. This could cause yields to rise even when the Federal Reserve cuts interest rates. The asset management agency explained that the increase in the supply of US bonds may face a decrease in demand from the Federal Reserve and foreign central banks.