Learn about Money from Ray Dalio

Ray Dalio was interviewd on Bloomberg today (see also another good interview at the bottom of this page) that I would like to reak down for our new investors and traders seeking some good ‘ol financial education. Let’s dive right in (read this first):

• Ray Dalio says many investors ignore a simple question: what is money worth when debt is huge and trust is weaker.

• When governments borrow a lot, they must sell a lot of bonds. If buyers do not show up, yields jump.

• Japan just gave a real example: long-term Japanese bond yields surged after big spending and tax cut talk, and a weak bond auction.

• “Bond vigilantes” is a nickname for investors who “punish” governments by selling bonds, forcing higher borrowing costs.

• Dalio’s message and Japan’s bond move point to the same risk: when bond demand breaks, money and markets can reprice fast.

Why this “Ray Dalio money” story is trending now

Ray Dalio (founder of Bridgewater) has been warning for years about debt cycles and the value of money. Recently, he has been discussing these themes again in media interviews, including Bloomberg Markets (as he noted in his own post about speaking with Bloomberg’s Francine Lacqua).

In the interview excerpt you shared, Dalio keeps returning to one big idea:

“I think they’re missing the value of money question.”

He even says it is “a bigger story than the tech stock story.”

This matters for a global audience because money is the thing we use to measure everything:

• stocks

• bonds

• gold

• real estate

• salaries

• living costs

If the measuring tool changes, the whole picture changes.

Step by step: what Ray Dalio means by “the value of money” (basic English)

Dalio is worried about a world where money slowly stops doing its main job: holding value over time.

Think of money like a battery that stores power.

• If the battery stays strong, you can use it later.

• If the battery loses power each year, you need more batteries to buy the same thing.

In real life, when money loses value:

Dalio connects that risk to high debt and to political conflict between countries.

The simple debt cycle Dalio is describing (no economics degree needed)

Dalio describes a cycle that looks like this:

1) Debt grows faster than income

A country earns money mainly through taxes (from people and companies).

If spending grows faster than taxes, the country borrows more.

2) Interest costs grow (debt service)

Dalio calls this “debt service payments.”

That means:

In your excerpt, he explains the danger like this:

“When debt service payments rise relative to income… they squeeze out spending.”

What does “squeeze out spending” mean in simple words?

It means debt payments take up more of the budget, so there is less money for “normal” things like:

• schools

• hospitals

• roads

• defense

• public services

Same as a family:

• If your loan payments rise a lot, you have less money for food, rent, and life.

3) The government must sell more bonds

Bonds are basically IOUs.

Dalio says:

“The supply of the bonds is high relative to the demand.”

Translation:

4) Buyers demand a better deal (higher yields)

If investors feel risk is rising, they want higher return.

Dalio says:

“If they don’t have a high enough return…”

So investors either:

5) Central banks may step in

If the bond market gets stressed, the central bank may buy bonds to stabilize the system.

But buying bonds often means creating money. That can weaken money over time, especially if done a lot.

Dalio says in your excerpt:

“You print more money… which devalues money and devalues that debt.”

The most important Ray Dalio quotes from your Bloomberg clip (and what they mean)

Here are the ideas Dalio said directly, with short quotes, and plain-English meaning.

“What is money?”

“Here is what the value of money.”

Meaning: most people track stock prices, but they do not ask if the currency itself is becoming weaker.

“Countries do not like to hold each other’s debt”

“Countries do not like to hold each other’s debt. They worry that some other country will sanction them.”

Meaning: in tense geopolitical times, holding another country’s bonds can become risky if assets get frozen or restricted.

“One man’s debt is another man’s asset”

“One man’s debt is another man’s asset.”

Meaning:

But that only works if the asset stays safe and keeps value.

“Meltdown” vs “melt-up”

“Could we see a meltdown? I don’t think… you almost could see a melt-up.”

Meaning:

Greenland comment (his example of a line being crossed)

“Military action in Greenland would change… the demand for those assets.”

Meaning:

This idea is similar to what Dalio said at Davos, where he warned that tensions can shift capital flows and reduce willingness to buy US assets, and that central banks have been building gold reserves in conflict periods.

Quick lesson: why bond yields jump when bonds are sold

This is the key math that many new traders miss:

Simple example:

• A bond pays $3 per year.

• If the bond price is $100, yield is 3%.

• If investors panic-sell and the bond price falls to $90, the yield becomes $3 / $90 = 3.33%.

So when you hear “yields surged,” it often means:

What are “bond vigilantes” in simple words?

“Bond vigilantes” is a nickname for investors who sell government bonds when they believe policy is reckless. That selling pushes yields higher and makes borrowing more expensive.

The European Central Bank explains it simply: investors who sell sovereign bonds in stress are called “vigilantes” because they “punish” governments for what they see as bad policy choices.

Investopedia also describes the idea as investors influencing policy by selling government bonds when they see it as inflationary or unsustainable.

Important detail:

What exactly happened in Japan a few days ago (dates and the key facts)

This is the real-world example that connects strongly to Dalio’s point.

The trigger: politics and fear of more debt

Japan’s Prime Minister Sanae Takaichi called a snap election (set for February 8) and campaigned on stimulus, including a plan to suspend a food tax for two years. Investors worried about how Japan would pay for it.

Japan already has one of the heaviest debt burdens in the developed world. Fitch recently noted Japan’s debt-to-GDP is over 230%.

The market reaction: buyers stepped back, yields surged

Reuters described a sharp repricing:

• 20-year, 30-year, and 40-year yields jumped to record highs in a rout as investors demanded higher returns.

• Reuters also reported wild swings, including a 27 basis point one-day rise in the 30-year yield to an all-time high around 3.88%.

The “bond vigilantes” angle: a buyer strike

A weak 20-year bond auction made it worse, and Reuters reported that scarce buying helped push yields into “uncharted territory.”

In plain words:

Why the BOJ matters here

Japan is special because the Bank of Japan (BOJ) has been a huge buyer of Japanese government bonds for years.

Reuters explains the BOJ owns more than half of the JGB market and is trying to reduce its presence by scaling back purchases.

So traders looked at Japan and thought:

That is the “supply vs demand” problem Dalio talked about.

How Japan’s bond vigilantes connect to what Ray Dalio means about money

Dalio’s warning can feel abstract. Japan made it real.

Here is the connection, step by step:

1) Higher debt expectations -> more bonds

When politicians promise tax cuts and more spending, investors expect:

• bigger deficits

• more bond issuance

2) More bonds + fewer natural buyers -> yields rise

Dalio said:

“Supply… high relative to demand.”

Japan showed this when bond auctions and secondary trading turned shaky and yields surged.

3) Higher yields -> higher debt service

If yields stay high, future interest costs rise.

That is Dalio’s “debt service payments rise relative to income” point.

4) Higher debt service can pressure the currency and the central bank

Reuters Breakingviews noted the yen fell more than 7% against the dollar amid the fiscal fears and bond moves.

Then policymakers face tough choices:

• let yields rise (painful for budgets)

• or step in (risking currency weakness)
  
  Reuters listed options like BOJ bond buying, changing the mix of issuance, or even shifting domestic pension demand.

This is exactly the “value of money” question:

• If the system is stabilized by creating money or forcing rates down, money can weaken.

• If rates are allowed to rise, debt service pain increases.

Why traders outside Japan should care (yes, even if you trade US stocks or crypto)

Japan’s bond market is huge, and moves there can ripple globally.

When Japanese yields spike:

Reuters highlighted that Japan’s bond swings are unsettling for investors because JGBs were long seen as stable, and policy choices now matter more.

And market commentary around Davos also pointed to Japan’s yield surge as a driver of wider bond volatility.

What to watch next (If/Then scenarios, not predictions)

These are clean scenarios a Year 12 student can follow.

Scenario A: If Japan calms the bond market

If:

• officials signal fiscal discipline, and/or

• issuance is adjusted, and/or

• BOJ policy guidance reduces fear

Then:

(Reuters lists several stabilization tools, including bond buying, slowing tapering, and adjusting issuance.)

Scenario B: If politics keeps pushing spending and buyers keep stepping back

If:

Then:

• yields can keep rising

• government borrowing costs rise

• currency pressure can increase

• global bond volatility can return quickly

(Reuters describes this “buyer vacuum” dynamic clearly.)

Scenario C: If geopolitics escalates (Dalio’s warning)

If geopolitical conflict increases and sanctions risk grows, Dalio’s point is:

That can change capital flows fast.

Simple glossary (for global readers)

• Store of wealth: money that keeps value over time (so savings still buy similar things later).

• Medium of exchange: money people accept for payment.

• Debt: money owed.

• Bond: a loan investors give to a government or company.

• Yield: the interest rate investors earn on a bond (moves up when bond prices fall).

• Debt service: interest payments on debt (and repayments).

• Sanctions: restrictions that can block trade, money transfers, or access to assets.

• Bond vigilantes: investors who sell government bonds to “punish” risky policy, pushing yields higher.

• Melt-up: asset prices rise fast, partly because money is weaker (Dalio’s term in your clip).

• Supply and demand: if more bonds are for sale than people want to buy, prices fall and yields rise.

As more advanced education for you investors, earlier this year, in this wide-ranging conversation, Ray Dalio discusses the growing risks facing the US economy, including surging national debt, tariffs, inflation, and the long-term consequences of dollar devaluation, while explaining why gold still functions as money in periods of stress. Speaking with David Rubenstein on The David Rubenstein Show: Peer to Peer Conversations, Dalio also reflects on his new book, his early life, and how historical cycles shape today’s economic and political transitions.

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