US Debt Risk (2025)
Use this file when: Quantifying US sovereign and Fed risk levels as of 2025. The data points here are Dalio’s own assessments from March 2025 — anchor any current analysis against these.
Fiscal Position Snapshot
“Central Government Debt Today (% Revenue): 583% | Proj Debt in 2035 (% Revenue, CBO): 648% | Proj Nominal Growth Rate: 3.9% | Proj Effective Nominal Interest Rate: 3.5%.” — a-00084
| Metric | 2025 | 2035 (CBO baseline) |
|---|---|---|
| Debt / Revenue | 583% | 648% |
| Debt / GDP | ~100% | ~118% |
| Effective interest rate | 3.5% | ~3.5% |
| Nominal growth rate | 3.9% | 3.9% |
| Primary deficit | ~12% of revenue | ~12% |
The margin of safety (r - g) is currently -40 basis points. Any rate rise of 0.4% or growth decline of 0.4% flips to debt spiral.
Dalio’s Risk Gauges
“At this time, I judge the long-term risks of US government debt to be very high because the current and projected levels of US government debt and debt service relative to revenues are the highest they’ve been since World War II. US Long-Term Risk Gauge: 2.4z. Current Borrowing Need (% Revenue): 39%.” — a-00266
- Long-term risk: 2.4 standard deviations above mean — near post-WWII high
- Annual borrowing need: 39% of revenue — requires substantial continuous bond market demand
- Rollover scenario: 239% of revenue — if existing holders refuse to roll, this is the acute funding requirement
The 239% rollover scenario is the acute risk: most US debt matures in 1-5 years, so each year the market must absorb both new issuance AND rollovers. If foreign buyers reduce purchases, yields must rise to clear supply.
Fed Balance Sheet Risk
“The long-term risk gauge is now higher than it has almost ever been because a) the Fed has a large balance sheet relative to its capital, b) it has negative net income due to paying more interest on reserves than it is earning on its bond holdings, and c) the large amount of unbacked money (71% of GDP) represents claims that could be presented back to the Fed.” — a-00267
Three vulnerability layers:
- Negative carry: Fed earning ~1-2% on bond portfolio, paying ~5% on reserves = negative net income
- Duration mismatch: Holding long bonds at low yields funded by short reserves at high rates
- Unbacked money: 71% GDP in money supply without adequate reserve backing
The Fed is currently absorbing losses rather than printing — that’s the yellow flag condition. The red flag would be printing to cover operating losses.
The Stress Scenario
“US toy model: income growth 3.9%, effective rate 3.5%, debt/revenue 580%, primary deficit 12% of revenue. Even the ‘favorable’ r < g scenario leads to 648% debt/revenue by 2035. If private demand falls and rates rise, the path to crisis is faster — the model shows a self-reinforcing interest rate spiral once private buyers begin demanding higher risk premia.” — a-00245
Stress scenario progression:
- Foreign buyers reduce Treasury demand (TIC data shows this beginning)
- Auction bid-to-cover falls → yields rise to clear supply
- Higher rates → higher debt service → larger deficit
- CB steps in to buy (MP2 intensifies)
- CB buying → inflation expectations rise → rates demanded by private buyers rise further
- Self-reinforcing loop begins
Policy Solution Required
“The budget deficit needs to be cut by about 3% of GDP. This can be achieved by a 3-part approach: 1% of GDP in spending cuts, 1% of GDP in tax increases, 1% reduction in real interest rates via the Fed.” — a-00268
Without action: debt/revenue hits 648% by 2035 at minimum, accelerating thereafter. a-00270
The window is open but closing: counter-cyclical fiscal adjustment requires doing it when growth is positive (current conditions). Waiting for a crisis forces the adjustment in contractionary conditions, amplifying the pain.
Historical Context
“At the start of 2020, more than $10 trillion of debt was at negative interest rates and an unusually large amount of additional new debt will soon need to be sold to finance deficits.” — a-00129
The 2020-2025 period saw the fastest peacetime debt buildup in US history: emergency COVID spending + interest rate surge = structural deterioration. The 583% debt/revenue ratio was the post-WWII high in 1946 (when war was over and debt was being paid down). Today’s level reflects no such end to the spending pressure.