Ray Dalio, the hedge fund manager, said that central banks are giving low-priced money to capitalists, and they are putting it in their companies, which are not profitable for economic growth.
He showed his concerns by adding, “U.S. economy is broken, and the world has become mad.” Also, the US’s debt is becoming more sizeable, and investors are getting money at very low rates, which in turn is affecting the economy in a bad way.
The debt of the U.S. Fed is $984 billion in 2019, while in 2018, the debt was less by 26%.
This is why the central banking system has low-interest rates. The U.S. will have no other choice, only to raise taxes, in the nearest future, to handle their debts and liabilities.
Ray Dalio thinks that the U.S. will pay its debts, but at what cost? Well, a possible answer is off of the cost of raised taxes. More probably, these debts will rise and be $1.2 trillion in 2029.
Nevertheless, President Trump rejects the statement that the U.S. has experienced an economic back-down and suggests that the U.S. economic model is an example of success for other nations. The U.S President was thinking about reducing the taxes, but before that, the White House denied those suggestions. Trump said that it would help improve the situation of the workers in the U.S. He added that Democrats are hoping for an unfavorable economic situation to win the 2020 elections, and the media also backing up these claims.
However, one certain thing is that if the President tries to reduce payroll taxes, he will face strong resistance from Democrats. On their side, Democrats are saying that 6.2 percent of payroll taxes are helping social welfare programs. So, like most situations, the suggestion of payroll tax reforms has both its pros and cons. Nonetheless, it is critical to think carefully and to seize possible risks.
The Only Option: To Increase Taxes
The national debt, pension, and health-care liabilities will result in raising taxes, Ray Dalio suggests. This is because all of these three promises must be fulfilled. He sees health-care and pension obligations similarly as debt too. The only way to pay those debts is to raise taxes.
Dalio said that he thinks it is not a problem that cannot be resolved. But it is an issue that needs to be measured very carefully and from different angles. Economists need to think about which segments to raise taxes in, and from which segments to refrain. Additionally, they will have to consider how these changes will affect the middle class, people living in poverty and so on.
Congressional Budget Office Projections
The projections from the CBO came after Trump said he wants to impose new tariffs on Chinese imports. Trump imposed a 25 percent tariff on $250 billion worth of Chinese goods. These tariffs will be executed starting from September 1st.
Economists say that this will have a bad impact on U.S. consumers who are buying Chinese products.
On their side, China taxed $110 billion worth of U.S. imports. Afterward, they added they would not buy U.S. agricultural goods.
