Is the Fed powerless to save the situation? Ray Dalio reveals the risks behind the downgrade of US debt rating: "Inflation" is the real default

The U.S. debt credit rating was downgraded, triggering market attention to genuine risks. Bridgewater founder Ray Dalio points out that default is not just "not paying back money", but more likely through printing money to "devalue debt repayment". As fiscal deficit enters an irreversible stage, the Federal Reserve's policy tools are gradually losing effectiveness, and "fiscal dominance" becomes the new norm, with the U.S. monetary system and fiscal structure set to be severely shaken.

(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)

This also makes the meme "Nothing Stops This Train" a microcosm of the current US economic crisis. When the deficit is endless, when inflation becomes a policy tool rather than an enemy, escape is also a solution. The role of anti-inflationary assets such as Bitcoin and gold is being re-examined in this context.

Will the Federal Reserve Turn? Are the Data Cosmetic or a Signal?

The market generally expects that the Federal Reserve may be about to turn, and crypto KOL @Vito_168 believes that the Federal Reserve will not openly admit the impending collapse of the US debt market liquidity. Instead, there will be a narrative that "data is starting to improve", such as "inflation cooling, economic slowdown, and loose policies taking effect":

Work hard and do overtime, adjust the data just right, anyway, most so-called macro analysts won't understand.

He jokingly said that Trump might even claim this as his victory, successfully persuading Powell to navigate the election.

US Debt Crisis Storm, Are You Ready?

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

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

Jim Chanos is a Wall Street legendary short seller, known for precisely targeting financially problematic companies. His claim to fame was shorting Enron. In 2001, he discovered its financial fraud a year before its bankruptcy, went Short extensively, and profited handsomely, becoming famous overnight. He is the founder of the Short fund Kynikos Associates, which was closed in 2023 and transitioned to a family office.

Other classic Short cases include Luckin Coffee, China Evergrande Group, and Tesla. He has long questioned TSLA's valuation, but Tesla's strong stock performance in recent years has cost him dearly. His investment philosophy focuses on finding value traps, excelling at analyzing financial statement loopholes to identify problematic companies. His most recent move was to prominently Short Strategy (formerly MicroStrategy), criticizing its "Bitcoin proxy stock" premium as absurd, while simultaneously buying Bitcoin as a hedge.

Famous Short Seller: Holding BTC and Shorting MSTR as a Hedge

Jim Chanos revealed that he is simultaneously conducting a hedge operation: Shorting Strategy stock while directly buying Bitcoin. He explained: "We are just replicating MicroStrategy and its co-founder Michael Saylor's operation," he added: "Selling MicroStrategy stock and holding Bitcoin is equivalent to acquiring 2.5 dollars in value at a 1 dollar cost."

Strategy continues to increase Bitcoin holdings through debt, causing its stock price to have a significant premium relative to its Bitcoin holdings value. Chanos criticized that this model is triggering an absurd mimicry effect, with more and more companies selling retail investors the story of "we will hold Bitcoin in corporate form" and demanding the same premium from the market.

(Famous Short Investor Jim Chanos: Longing Bitcoin + Shorting MicroStrategy for Arbitrage)

"MicroStrategy and its imitators are essentially packaging corporate financial operations as Bitcoin investment tools," Chanos told CNBC: "We are just replicating their strategy, selling overvalued MSTR stock and reinvesting in real Bitcoin."

Over the past year, Strategy's stock price has surged over 220%, while Bitcoin rose about 70% in the same period. Chanos emphasized that this price difference reflects retail speculative enthusiasm: "This is not just an arbitrage opportunity, but a thermometer of retail market frenzy."

Strategy Believers: Shorting MSTR and Longing BTC Strategy is BTC Fuel

Teahouse Finance's CEO Fenix stated that many funds are using the tactic of "Shorting MSTR and Longing BTC", watching MSTR rise from 150 to 400, causing Short sellers immense pain. Currently, MSTR's "days to cover" remains stable at around 1.5 days, which is a very healthy indicator. Therefore, we should welcome this strategy with open arms because MSTR's essence is based on BTC's long-term growth value.

He pointed out that Michael Saylor has established a BTC moat with an average buy-in price of around $70,000 per BTC. Unless BTC dramatically falls below $70,000 in the future, it is impossible to truly break through MSTR's stock price defense line. The strategy of everyone "Shorting MSTR and Longing BTC" will instead further push up BTC's price, ultimately being completely crushed by new incoming buying pressure.

He stated that traditional finance has this arbitrage idea because traditional funds cannot accept MSTR's debt-driven BTC buying model, viewing it as a Ponzi scheme. However, Michael Saylor's brilliance lies in foreseeing the continuous decline of the US dollar's purchasing power. Besides continuously buying scarce assets like BTC, using debt (continuously depreciating currency) to purchase more scarce assets is a complementary, two-sided strategy.