Dalio: US bonds are a very risky investment, AI is wonderful and dangerous

On Monday, Ray Dalio, founder of the world's largest hedge fund, Bridgewater Associates, said that as the United States is deeply mired in a debt crisis, the risk of US bonds is rising. Compared with US bonds, US stocks are a better investment.

In an interview with the media, Dalio said, "I think bonds are a very risky investment. Risk is not measured by whether they repay the debt. Their only obligation is to give you money, but they can print money. It is common in history that governments cannot repay the principal. But the situation here is that their repayment obligation can be completed by printing money."

Dalio pointed out that the debt service expenditure of US Treasury bonds is increasingly eroding the US government's expenditure. At the same time, the rapid rise in interest rates has caused huge losses to institutions including the Federal Reserve. The Federal Reserve's losses are mainly due to the decline in the value of bonds held, and the interest rate of newly borrowed money is too high.

Dalio also said that another factor unfavorable to US bonds is the sanctions imposed by the United States on foreign countries. "Other countries are increasingly worried about sanctions. If they sell US bonds, that will be a real problem. That will mean either a much higher interest rate or the Federal Reserve must intervene and print a lot of money. This is something we must be vigilant about."

Dalio said that in this environment, stocks often perform better than government bonds. He recalled that in 1971, when President Nixon ended the gold standard of the US dollar, the US stock market soared. Currency value, printing money and other factors supported the performance of the stock market relative to the bond market. It caused currency depreciation.

The S&P 500 index has risen more than 12% this year, returning to above 4300 points, reaching the highest level since August last year. The trend of US bonds is far inferior to that of US stocks.

Dalio also talked about artificial intelligence. He said that this emerging technology is wonderful and dangerous, powerful but also risky. "I think it's incredible, it will be great. It will create tremendous power. The risk is how people use it. The only problem is people. How to use technology is risky. The environment we are in is that it can either generate huge productivity and improve our living standards and really make things better, or it can be used for war and hurt each other in various ways."

Dalio believes that artificial intelligence will become a huge revolutionary force. "Many things you think on the basis of the status quo will change dramatically because of this. This is a powerful force. It can surpass ourselves, become partners, and even entities that can challenge us."

Consistent with his well-known views, Dalio also mentioned the downside risks facing the United States. "If you encounter a financial crisis and huge wealth gap at the same time, resulting in huge differences, then you are likely to produce populism. Populists are people who do not accept failure. The combination of these two things is an explosive combination."

Last week, Dalio warned that we are at the beginning of a large cyclical debt crisis. He believes that the inflation rate in the United States will remain high, and at the same time, the real interest rate will rise. If political division continues, the deterioration of the US economy may lead to more internal conflicts.