Ray Dalio, the founder and CIO of hedge fund Bridgewater Associates, believes what is called the debt limit never actually limits the debt, but is in fact a farce.

What Happened: “It’s a farce that works like a bunch of alcoholics who write laws to enforce drinking limits, and when a limit is reached, they do a farcical negotiation that temporarily eliminates the limit which allows them to have the next drinking binge until they reach the next limit at which time they go through the next farcical negotiation and continue to binge,” Dalio wrote in a post titled ‘The Farce and Consequences of the Debt Limit and the Debt’ on LinkedIn. 

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“I gather that this is the 79th farcical negotiation that has taken place,” he said.

Dalio also wondered whether this ritual shows the people running the political system lack discipline. “I think it makes clear that the long-term prognosis is for the debt bingeing to go on until a crisis ends this dynamic. However, most people seem comforted that the debt limit won’t trigger a debt default and don’t worry about the debt bingeing continuing,” he said.

Why It Matters: Congressional Democrats are now reportedly pushing Republicans to come up with a proposal to increase the debt ceiling and avert a U.S. default after they met with President Joe Biden on Tuesday.

Biden has said he has no intention of letting the Republicans “wreck our economy.”

Republicans, who control the House of Representatives, are reportedly divided over how hard a stance to take on the debt ceiling. However, they stood united on Wednesday in their demand that Biden agrees to negotiate on spending as part of any deal, reported Reuters.

Government Finances: Dalio said the finances of countries’ governments work the same as the finances of individuals and organizations, with the only difference being that governments can print money and take money from some people to give it to others.

“Because money and debt are not limited, those who make the decisions on how much to spend on what, don’t look at how much money they have to spend and then prioritize what they should spend it on,” he said. 

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Photo: TechCrunch from Flickr.