Stabilizing the bond market is crucial, according to Ray Dalio, and requires reducing the budget deficit.

Ray Dalio, a billionaire investor, believes that decreasing the U.S. budget deficit can stabilize the bond market and lower interest rates.

The CEO of Bridgewater, one of the world's largest hedge funds, stated that if the projected deficit decreases from 7.5% to 3% of U.S. GDP, the supply-demand imbalance in the bond market will be significantly reduced, according to Dalio.

"Dalio stated on CNBC's "Squawk Box" at the World Economic Forum in Davos, Switzerland that the situation is almost black and white. He explained that all bonds must be sold due to a tremendous supply, which has happened many times before. To stabilize the situation, they must take action."

The national debt has surpassed $36 trillion due to the confluence of rising financing costs, increased spending, and decreasing tax revenues. In 2024, the government's interest payments outpaced all other expenses, except for Social Security, defense, and healthcare.

Politicians must work together to solve the deficit problem, which can be achieved through higher taxes, lower spending, or a combination of both, as advised by the widely-followed investor.

"Dalio referred to the 3% solution as the solution to our debt problem, which is more expensive than spending and taxes. However, our issue is not the deficit, but rather the fragmented politics that hinder our ability to address it."