Ray Dalio: Credit Ratings Fail to Assess Key Debt Risks

Ray Dalio argues that credit rating agencies often overlook a significant risk associated with countries that are burdened by debt: the potential for those countries to print money as a means to repay their obligations. This action can lead to inflation, ultimately causing bondholders to face losses due to the diminished purchasing power of the currency they hold.

According to Dalio, credit rating agencies do not include the greater risk that countries in debt will print money to pay their debts, thus causing bondholders to suffer losses from the decreased value of the money they are getting (rather than from the decreased quantity of money they are getting).

Dalio is the founder of Bridgewater Associates and one of the few to foresee the 2008 financial crisis. “Said differently, for those who care about the value of their money, the risks for US government debt are greater than the rating agencies are conveying,” added Dalio in a post on ‘X’ (formerly Twitter).