The collapse of Silicon Valley Bank is indicative of a global problem, warns Ray Dalio, managing director of Bridgewater Associates, noting that “everyone is losing money lately.”

The billionaire hedge fund manager speaks of a “terrible imbalance” caused by a sharp rise in interest rates. As long as the Fed kept interest rates low, he explains, banks could borrow and invest cheaply. But once the Fed raised interest rates aggressively, those investments lost value or began to earn lower returns. When this happens, “everyone loses money. And this is a ubiquitous situation that applies to the entire global economy, and not just the American economy,” he stressed.

As Dalio explains, the Fed faces a difficult task as it tries to find the golden ratio in interest rates: on the one hand, the key interest rate must be high enough to give positive real returns and thus exceed inflation, and on the other hand, it should not be so high as not to harm those who took out a loan for investment.

“Lately everyone is losing money,” said Ray Dalio, managing director of Bridgewater Associates.

And because the US has a large budget deficit and therefore will have to borrow more in the coming years, investors need to secure big enough returns to keep buying US Treasuries. “If they don’t have high enough real yields, they can sell bonds instead of buying them. And this creates a terrible imbalance,” said Dalio.

But higher interest rates fall on bondholders, creating problems when, for whatever reason, bondholders are forced to sell early, resulting in losses. “In such cases, many organizations face financial difficulties,” concluded Dalio. Recall that the Silicon Valley bank collapsed after it was forced to sell its bond portfolio at a loss of $1.8 billion.

In the meantime, the German authorities estimate that they have exposed the one and only bet of 5 million euros, which led to the free fall of Deutsche Bank shares. It was a bet on so-called swaps, risk premiums in the event of default by the flagship German bank.