The Federal Reserve (FED) powerless? Ray Dalio reveals the risks behind the downgrade of U.S. debt ratings: "Inflation" is the real default.

The downgrade of the U.S. credit rating has sparked market concerns about the real risks. Bridgewater founder Ray Dalio pointed out that defaulting is not just about "not paying back money," but it could also be through printing money to "devalue debt." As the fiscal deficit enters an irreversible stage, the Federal Reserve's policy tools are gradually becoming ineffective, and "fiscal dominance" has become the new normal. The U.S. monetary system and fiscal structure will also face severe upheaval.

(Why was the U.S. national debt downgraded? What impact does it have on Taiwan, which holds a large amount of U.S. debt? Research institution: Technically, the credit rating has not changed )

Distortion of US Debt Ratings: Is the Money You Receive Still Worth Something?

Recently, the credit rating of U.S. sovereign debt has been downgraded again, attracting the attention of the financial community to the difference between "(Nominal Safety)" and "(Real Safety)". Ray Dalio, the founder of Bridgewater Associates, pointed out in a tweet yesterday that rating agencies only assess whether the government will "default", while ignoring the greater risk of the government "printing money and devaluing".

The government may reduce its debt by printing money, resulting in losses for bondholders due to "the money received becoming less valuable" rather than "the money received decreasing." For investors concerned about the actual purchasing power of their assets, the risk of US debt is actually much higher than what credit rating agencies indicate.

(Ray Dalio warns that the global order is facing a once-in-a-century collapse: a storm of debt, currency, politics, and tariffs interwoven )

Gold bull Peter Schiff further emphasized that inflation is the main risk when debt is issued in the local currency. For foreign creditors who cannot vote, they are more likely to become victims of inflation, thus the "default risk of U.S. Treasuries held by foreigners" should also be taken into account.

It can be seen that "nominal security" can be redeemed, but "real security" is the true core of risk.

Former Federal Reserve Chairman has long predicted: We guarantee payment, but we do not guarantee purchasing power.

Dalio's words inevitably remind one of former Federal Reserve Chairman Alan Greenspan's remarks in 2005:

We can guarantee the ability to pay in cash, but we cannot guarantee its purchasing power.

This aligns with Dalio's perspective: "The most terrifying form of default today is not debt default, but rather stealing value through inflation."

(The global shift of capital after the tariff war and the fluctuations of Trump’s policies: Has the safe haven status of U.S. Treasury bonds weakened?)

The era of financial dominance has arrived: The Federal Reserve (FED) is at a loss.

Another tweet from crypto media Swan suggests that we have entered the era of a new monetary system of "fiscal dominance (Fiscal Dominance)". Traditionally, the market has focused on the Fed's interest rate and QE policies, but now it is the US Treasury and Congress that really set the market. As the debt deficit spirals out of control, the Fed has less room to maneuver:

Interest rates cannot continue to rise, otherwise it will trigger a financial crisis.

The balance sheet reduction can only be done in the short term and cannot be sustained.

Once inflation heats up, the central bank will also be powerless to fight back.

Financial analyst Lyn Alden summarized: "These old tools are no longer effective; this is a completely different system."

( The exit of dollar hegemony is a necessary part of the transformation of the American financial system: how should investors respond to the "post-dollar era"? )

The debt deficit is "structural" rather than "cyclical".

Swan is concerned that the current fiscal deficit issue in the United States has long exceeded the scope of cyclical fluctuations and is instead a deep structural flaw:

The deficit is no longer a temporary side effect of an economic downturn, but a long-term result of the design of the national system.

This also makes the meme "Nothing Stops This Train." a microcosm of the current economic crisis in the United States. When the deficit is endless, and inflation has become a tool of policy rather than an enemy, escape is also a solution. The role of inflation-resistant assets like Bitcoin and gold is being re-examined in this context.

Will the Federal Reserve (FED) shift? Is the data cosmetic or a signal?

The market generally anticipates that the Federal Reserve (FED) may be about to shift its stance. Crypto KOL @Vito_168 believes that the Federal Reserve will not publicly acknowledge the reality of the impending collapse of liquidity in the US Treasury market. Instead, there will be a narrative of "data starting to improve," such as "inflation cooling, economic slowdown, and the effectiveness of loose policies."

Work hard and put in extra hours to fine-tune the data just right, after all, most so-called macro analysts can't understand it anyway.

He jokingly said that by then Trump might even claim this as his victory, successfully convincing Powell to support his campaign.

Are you ready for the storm of the US debt crisis?

When ratings are no longer reliable, when central banks are powerless, when structural deficits and fiscal dominance have become a foregone conclusion, investors face not just market volatility, but the risks and opportunities of an entire monetary system transformation.

Dalio has repeatedly warned that the future asset allocation logic must respond to the ongoing systemic transformation, and everyone may need to prepare their own "escape pod."

Is the Federal Reserve powerless to turn things around? Ray Dalio reveals the risks behind the downgrade of U.S. debt ratings: "Inflation" is the real default. First appeared on Chain News ABMedia.