The 3% solution won’t balance the budget, but it might prevent a meltdown. 

No Labels was recently joined by Jim Millstein, one of the top financial minds in the country, to talk about the risks of America entering a debt spiral. His message was clear: interest costs on the national debt are rising fast, and if we don’t change course soon, we could find ourselves on a perilous path that’s hard to escape. 

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Millstein is hardly the first person to raise this concern. Les Rubin, president of Main Street Economics, wrote a recent article on the No Labels website about the urgency of the debt crisis. And Ray Dalio – founder of Bridgewater, the world’s largest hedge fund – explores solutions in his forthcoming book How Countries Go Broke.  

Dalio’s big idea is what he calls the “3 percent solution.”  

The premise is simple and realistic: the U.S. doesn’t need to eliminate the national debt or balance the budget tomorrow, Dalio says, but we do need to keep the annual deficit – the amount we borrow each year – under 3% of gross domestic product (GDP), a broad measure of the economy. That’s the level where debt can grow more slowly than the economy, which makes it manageable over time. 

Right now, we’re running deficits over 6% of GDP. That pace adds debt faster than our ability to pay it down, which makes investors nervous and pushes up interest rates, making everything the government does even more expensive.   

Case in point: Moody’s recently lowered America’s credit rating for the first time, citing our out-of-control national debt. In response, the stock market dipped and the 30-year Treasury yield topped 5%, the highest since 2023 and higher than any point in the 2010s. 

While this has prompted some fiscal hawks to demand a balanced budget – where the federal government spends only as much as it takes in from taxes – Dalio says that’s not necessary.  

Stabilizing the deficit at 3% is enough to stabilize the debt, Dalio believes, and signal to markets that the U.S. is getting its fiscal house in order. He lays out a path to get there through a mix of modest spending cuts, revenue increases, and lower interest rates. 

Now, as always, the question is, “Will Congress act in time to avoid a crisis?”

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