Billionaire investor Ray Dalio warns debt is being devalued as governments pile it up and central banks keep rates artificially low

Ray Dalio

Yesterday, the Federal Reserve made a jumbo rate cut, its first cut in over four years as the central bank shifts its focus from fighting inflation to holding the job market together.

Yet, billionaire investor Ray Dalio isn’t convinced that the Fed and other central banks’ moves to lower rates will address the big problem: surging debt levels.

Dalio said the amount of debt held by governments around the world is historically unprecedented, and could lead to a depreciation of debt as central banks push borrowing costs lower.

Dalio is increasingly worried by “the enormous amount of debt that is being created by governments and monetized by central banks,” particularly in the US, he said in an interview with CNBC’s “Squawk Box Asia.”

Global debt held by governments, companies, and individuals is estimated to be around $315 trillion, according to data from the Institute of International Finance.

“Those magnitudes have never existed in my lifetime,” he said.

And the value of debt could depreciate if central banks keep lowering interest rates, Dalio said.

“I see a big depreciation in the value of that debt through a combination of artificial low real rates, so you won’t be compensated,” he said.

The US has accumulated debt totaling $35.3 trillion, which Dalio called ” enormous.”

“The challenge of the Federal Reserve is to keep interest rates high enough that they’re good for the creditor, while keeping them not so high that they’re problematic for the debtor,” he said.

Dalio said the US will likely continue monetizing its debt, and likened the trajectory to that of Japan, which kept rates low, depreciating the yen.

“I think as time goes on, the path will be increasingly toward monetizing that debt, following a path very similar to Japan,” he said.

“The value of a Japanese bond has gone down by 90% so that there’s a tremendous tax through artificially giving you a lower yield each year,” he said.