Bridgewater's Dalio warns US debt could get out of control

By Carolina Mandl

NEW YORK, May 22 (Reuters) - Bridgewater Associates' founder Ray Dalio said on Thursday investors should be concerned about the U.S. deficit as debt growth is getting more difficult to control, and he warned that demand for government bonds would likely lag the amount of new bonds needed to cover the tax bill passed by the U.S. House.

"We should be afraid of the bond market. The circumstances are flashing," he told an audience at the Paley Center for Media in New York, commenting on the tax and spending bill passed early on Thursday by the U.S. House of Representatives. "If we're looking over the next three years, to give or take a year or two, we're in that type of a critical situation, and it can't be handled."

The bill passed by the House, which is subject to approval in the U.S. Senate, would add about $3.8 trillion to the federal government's $36.2 trillion in debt over the next decade, according to the nonpartisan Congressional Budget Office.

Dalio said he is particularly concerned about an imbalanced supply and demand for bonds. As the U.S. government would have to issue more bonds to cover for the tax bill, Dalio said "there probably will not be enough demand."

On Wednesday, the U.S. Treasury Department saw soft demand for a $16 billion sale of 20-year bonds with investors worried about the country's increasing debt burden.

The billionaire investor also showed concern over investors' ditching U.S. bonds. "The big risk is that when holders choose to sell, you would have a gigantic shift in terms of that supply-demand, because it's not just the existing quantity, it's the other new debt that's held, being sold. That dynamic is where we're at the breakdown," Dalio said.

The yield on the 30-year U.S. Treasury bond, which moves inversely to the bond's price, hit a 19-month high before easing on Thursday.