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Principles For Navigating Big Debt Crises
On the 10th anniversary of the 2008 financial crisis, one of the world's most successful investors, Ray Dalio, shares his unique template for how debt crises work and principles for dealing with them well. This template allowed his firm, Bridgewater Associates, to anticipate events and navigate them well while others struggled badly.
As he explained in his #1 New York Times Bestseller, Principles: Life & Work, Dalio believes that most everything happens over and over again through time so that by studying their patterns one can understand the cause-effect relationships behind them and develop principles for dealing with them well. In this 3-part research series, he does that for big debt crises and shares his template in the hopes reducing the chances of big debt crises happening and helping them be better managed in the future.
The template comes in three parts provided in three books: 1) The Archetypal Big Debt Cycle (which explains the template), 2) 3 Detailed Cases (which examines in depth the 2008 financial crisis, the 1930's Great Depression, and the 1920's inflationary depression of Germany's Weimar Republic), and 3) Compendium of 48 Cases (which is a compendium of charts and brief descriptions of the worst debt crises of the last 100 years). Whether you're an investor, a policy maker, or are simply interested, the unconventional perspective of one of the few people who navigated the crises successfully, A Template for Understanding Big Debt Crises will help you understand the economy and markets in revealing new ways.
As he explained in his #1 New York Times Bestseller, Principles: Life & Work, Dalio believes that most everything happens over and over again through time so that by studying their patterns one can understand the cause-effect relationships behind them and develop principles for dealing with them well. In this 3-part research series, he does that for big debt crises and shares his template in the hopes reducing the chances of big debt crises happening and helping them be better managed in the future.
The template comes in three parts provided in three books: 1) The Archetypal Big Debt Cycle (which explains the template), 2) 3 Detailed Cases (which examines in depth the 2008 financial crisis, the 1930's Great Depression, and the 1920's inflationary depression of Germany's Weimar Republic), and 3) Compendium of 48 Cases (which is a compendium of charts and brief descriptions of the worst debt crises of the last 100 years). Whether you're an investor, a policy maker, or are simply interested, the unconventional perspective of one of the few people who navigated the crises successfully, A Template for Understanding Big Debt Crises will help you understand the economy and markets in revealing new ways.
471 pages, ebook
First published January 1, 2018
About the author
Ray Dalio
42 books4,437 followersRaymond Dalio (born August 8, 1949) is an American investor, hedge fund manager, and philanthropist. Dalio is the founder of investment firm Bridgewater Associates, one of the world's largest hedge funds.
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Displaying 1 - 30 of 181 reviews
December 28, 2018
Key takeaways:
* Debt isn’t necessarily bad. In fact, having too little debt creates economic problems in the form of forgone opportunities. The key is to ensure productive utilization of the borrowed money to produce income needed to service that debt
* Crisis and debt cycles are inevitable due to human nature. During the bubble, people are blinded by the present market boom and driven by greed to participate. This continues until debt burden gets too big. Creditors worry, increase restriction and thus the trend inverses
* A big part of depression is people discovering what they thought was wealth wasn’t really there. By this point, interest rate has hit zero. Central banks are forced to print more money to buy financial assets, hoping to boost lenders’ confidence to extend credit. This however widens inequality because it’s only making the rich (asset holders) richer.
* Debt isn’t necessarily bad. In fact, having too little debt creates economic problems in the form of forgone opportunities. The key is to ensure productive utilization of the borrowed money to produce income needed to service that debt
* Crisis and debt cycles are inevitable due to human nature. During the bubble, people are blinded by the present market boom and driven by greed to participate. This continues until debt burden gets too big. Creditors worry, increase restriction and thus the trend inverses
* A big part of depression is people discovering what they thought was wealth wasn’t really there. By this point, interest rate has hit zero. Central banks are forced to print more money to buy financial assets, hoping to boost lenders’ confidence to extend credit. This however widens inequality because it’s only making the rich (asset holders) richer.
December 8, 2019
6.75/10
Detailed analysis of *what*, void of cogitation as to *why*. Also very statist and interventionist (MMT echoes throughout), which is unpalatable but to a degree practical (i.e., one must trade through extant conditions, not ideals), but clearly is the author's (incorrect) ideal.
This book, without the historical charts, would not be worthy of four stars, and probably not three. It is a goldmine for the compendium of charts, which covereth a multitude of sins.
I recommend alongside this, for economics' and analysis' sake, the 'Monetary History of the United States', and 'Money, Bank Credit, and Economic Cycles' (both of which are directly relevant), with further reading in 'Socialism' by von Mises, 'Democracy: the god that failed', 'Human Action', 'Man, Economy, and State', 'The Progressive Era' (FDR's policy is praised by Dalio) and 'Power and Market'.
Detailed analysis of *what*, void of cogitation as to *why*. Also very statist and interventionist (MMT echoes throughout), which is unpalatable but to a degree practical (i.e., one must trade through extant conditions, not ideals), but clearly is the author's (incorrect) ideal.
This book, without the historical charts, would not be worthy of four stars, and probably not three. It is a goldmine for the compendium of charts, which covereth a multitude of sins.
I recommend alongside this, for economics' and analysis' sake, the 'Monetary History of the United States', and 'Money, Bank Credit, and Economic Cycles' (both of which are directly relevant), with further reading in 'Socialism' by von Mises, 'Democracy: the god that failed', 'Human Action', 'Man, Economy, and State', 'The Progressive Era' (FDR's policy is praised by Dalio) and 'Power and Market'.
September 17, 2018
Regular readers of Bridgewater's Daily Observations will be familiar with the thinking and sections presented here. Bridgewater's/Dalio's framework for thinking through debt cycles is historically grounded and pretty rigorous, and serves as a good reference and guide when thinking about markets - both in the past and future. The writing is easy to read, and the book does not need to be read from cover to cover - there are many parts and appendices that can be skimmed through or skipped and reserved for future reference. Had read the free PDF version of this book, but this book definitely deserves a hard copy purchase.
October 11, 2018
I received this book, for free, in exchange for an honest review.
This book is an excellent book for a specific audience.
This book needs to be read slowly and deliberately.
It is a work of great intelligence and research with a corresponding level of reading difficulty.
Much of the information was above my head and could only be understood if I were to devote months to read this. As a background, I have an intermediate level of finance/investing knowledge which is far better than average. That being said, my knowledge of bubbles (which seems to be the main focus of the book) is relatively limited and there are people with orders of magnitude more knowledge. My guess is that in order to benefit from this book you have to have a decent level of financial knowledge, above average knowledge of debt and cycles and ample free time. If this sounds like you read on and you will most likely be amply rewarded.
This book is an excellent book for a specific audience.
This book needs to be read slowly and deliberately.
It is a work of great intelligence and research with a corresponding level of reading difficulty.
Much of the information was above my head and could only be understood if I were to devote months to read this. As a background, I have an intermediate level of finance/investing knowledge which is far better than average. That being said, my knowledge of bubbles (which seems to be the main focus of the book) is relatively limited and there are people with orders of magnitude more knowledge. My guess is that in order to benefit from this book you have to have a decent level of financial knowledge, above average knowledge of debt and cycles and ample free time. If this sounds like you read on and you will most likely be amply rewarded.
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June 16, 2022ยาก แต่ก็ดีแต่ก็ยาก (ไว้ค่อยเขียนสรุปอีกที)
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big debt crisis เป็นหนังสือเศรษฐศาสตร์มหภาคที่ว่าจะง่ายก็ไม่ได้ง่ายขนาดนั้น (คือ มันก็ยากด้วยมหภาคอยู่แล้ว) แต่เรย์ก็ย่นย่อประวัติศาสตร์แล้วทำออกมาได้ดีที่จะทำให้คนทั่วๆ ไปเห็นภาพของเศรษฐกิจช่วง boom/bust cycle โดยแบ่งหนังสือเป็นสามส่วนใหญ่ๆ
1. ช่วงแรกพูดถึงภาพรวม ลำดับขั้นการเกิด/การตกต่ำของเศรษฐกิจ : ถ้าเราอ่านพาร์ทนี้เข้าใจ พาร์ทอื่นๆ จะง่าย
2. เป็นตัวอย่างแบบลงรายละเอียดของเศรษฐกิจ/ hyperinflation ของเยอรมัน/ the great depression/ hamburger crisis โดยใช้ช่วงพาร์ทที่หนึงมาเป็นกรอบในการอธิบายแต่ละปีๆ ที่เกิดเหตุการณ์ใหญ่ทั้งสาม
3. ยกตัวอย่างประเทศต่างๆ ที่เกิดวิกฤตเศรษฐกิจอย่างย่นย่อ ประเทศละ 3-4 หน้า (สั้นสัดๆ) แต่ถ้าเราเข้าใจช่วงแรกดีมันก็จะเอามาใช้กับอีกนานาประเทศตรงนี้ได้ดีว่าเกิดอะไรขึ้น
เวลาเกิดวิกฤตเศรษฐกิจเกือบทุกประเทศ (มั้ง หรือทุกประเทศก็ไม่รู้ ไม่ได้ทำสถิติไว้) มักจะเกิดการเปลี่ยนแปลงทางด้านการเมืองด้วยเสมอ อย่างเยอรมันสมัยนู้นก็ทำให้พรรคฝั่งประชานิยมได้รับเลือก แฮมเบอร์เกอร์ไครซิสก็ด้วยที่กลายเป็นแดโมเครต (โอบาม่า) ชนะการเลือกตั้ง แม้กระทั่งของประเทศไทยต้มยำกุ้งไครซิสก็เป็นนายกทักษิณที่ชนะการเลือกตั้ง (ในหนังสือเขียนไว้อย่างนี้เลย)
ช่วงแฮมเบอร์เกอร์ไครซิส เราเองก็เป็นหนึ่งคนที่รู้สึกไม่พอใจกับการแก้ปัญหาที่เข้าไปอุ้มธนาคาร (too big too fail) ซึ่งบัดซบมากๆ แต่พออ่านเล่มนี้แล้วก็แบบ นั่นอาจจะเป็นการแก้ไขปัญหาที่ดีที่สุดเท่าที่จะทำได้เพื่อไม่ให้เศรษฐกิจมันพังไปมากกว่านี้แล้ว (ในมุมมองของเรย์) ทำให้เราอ่านแล้วก็แบบ เอ่อ มันก็อาจจะใช่ เพราะเราก็ไม่ได้อยู่ในตำแหน่งที่มีหน้าที่ตัดสิน แล้วแก้ปัญหา แต่การมองของคนนอกมันก็ง่ายกว่าที่จะพูด ก็ทำให้เห็นอีกมุมว่าการตัดสินใจและแก้ปัญหาเศรษฐกิจในช่วงวิกฤตมันไม่มีทำให้พอใจทุกส่วน และไม่อาจช่วยเหลือได้ทุกคน แต่ดีที่สุดที่ทำได้คือเท่าไร และอะไรเร่งด่วนต่างหากสำคัญกว่า และมันไม่ใช่เรื่องง่ายเพราะมันก็มีการขัดแข้งขัดขาของนักการเมืองอีก (แต่เราก็ไม่ได้เห็นด้วยทั้งหมดอยู่ดี แต่ก็สงสัยว่าถ้ามัน fail แล้วปล่อยให้ตายไปจริงๆ คนที่ตายจริงๆก็ไม่ใช่พวกตัวใหญ่ๆ อยู่ดี/เอาล่ะ มันไม่เกี่ยวกับหนังสือ)
ช่วงท้ายๆ ที่เป็นนานาประเทศเราไม่ได้อ่านครบทุกประเทศ แต่อ่านประเทศที่เราสนใจว่าเขาวิเคราะห์อย่างไร แล้วเขียนอธิบายอย่างไร ความแตกต่างของการจัดการแก้ไขปัญหามันเกี่ยวข้องกับอัตราการฟื้นตัวหรือเปล่า (แต่ก็ไม่ได้จดเอาไว้นะว่ามันเกี่ยวข้องกันมั้ย) แต่ถ้าอ่านแบบมีเ���้าหมายว่าจะวิเคราะห์ได้อย่างเขา คือ เอ่อ ยาก 5555555 แต่ถ้าอ่านเพื่อให้เข้าใจคร่าวๆว่ามันเกิดอะไรขึ้นกับโลกปัจจุบันก็อ่านๆ ไป ใช้ได้
ปล. อ่านแบบไทยก็ดีนะ เขาอภิทานคำศัพท์ไว้ด้วย (แบบวงเล็บเอาไว้แบบนี้อะ) เพราะมันมีศัพท์การเงินค่อนข้างเยอะ
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big debt crisis เป็นหนังสือเศรษฐศาสตร์มหภาคที่ว่าจะง่ายก็ไม่ได้ง่ายขนาดนั้น (คือ มันก็ยากด้วยมหภาคอยู่แล้ว) แต่เรย์ก็ย่นย่อประวัติศาสตร์แล้วทำออกมาได้ดีที่จะทำให้คนทั่วๆ ไปเห็นภาพของเศรษฐกิจช่วง boom/bust cycle โดยแบ่งหนังสือเป็นสามส่วนใหญ่ๆ
1. ช่วงแรกพูดถึงภาพรวม ลำดับขั้นการเกิด/การตกต่ำของเศรษฐกิจ : ถ้าเราอ่านพาร์ทนี้เข้าใจ พาร์ทอื่นๆ จะง่าย
2. เป็นตัวอย่างแบบลงรายละเอียดของเศรษฐกิจ/ hyperinflation ของเยอรมัน/ the great depression/ hamburger crisis โดยใช้ช่วงพาร์ทที่หนึงมาเป็นกรอบในการอธิบายแต่ละปีๆ ที่เกิดเหตุการณ์ใหญ่ทั้งสาม
3. ยกตัวอย่างประเทศต่างๆ ที่เกิดวิกฤตเศรษฐกิจอย่างย่นย่อ ประเทศละ 3-4 หน้า (สั้นสัดๆ) แต่ถ้าเราเข้าใจช่วงแรกดีมันก็จะเอามาใช้กับอีกนานาประเทศตรงนี้ได้ดีว่าเกิดอะไรขึ้น
เวลาเกิดวิกฤตเศรษฐกิจเกือบทุกประเทศ (มั้ง หรือทุกประเทศก็ไม่รู้ ไม่ได้ทำสถิติไว้) มักจะเกิดการเปลี่ยนแปลงทางด้านการเมืองด้วยเสมอ อย่างเยอรมันสมัยนู้นก็ทำให้พรรคฝั่งประชานิยมได้รับเลือก แฮมเบอร์เกอร์ไครซิสก็ด้วยที่กลายเป็นแดโมเครต (โอบาม่า) ชนะการเลือกตั้ง แม้กระทั่งของประเทศไทยต้มยำกุ้งไครซิสก็เป็นนายกทักษิณที่ชนะการเลือกตั้ง (ในหนังสือเขียนไว้อย่างนี้เลย)
ช่วงแฮมเบอร์เกอร์ไครซิส เราเองก็เป็นหนึ่งคนที่รู้สึกไม่พอใจกับการแก้ปัญหาที่เข้าไปอุ้มธนาคาร (too big too fail) ซึ่งบัดซบมากๆ แต่พออ่านเล่มนี้แล้วก็แบบ นั่นอาจจะเป็นการแก้ไขปัญหาที่ดีที่สุดเท่าที่จะทำได้เพื่อไม่ให้เศรษฐกิจมันพังไปมากกว่านี้แล้ว (ในมุมมองของเรย์) ทำให้เราอ่านแล้วก็แบบ เอ่อ มันก็อาจจะใช่ เพราะเราก็ไม่ได้อยู่ในตำแหน่งที่มีหน้าที่ตัดสิน แล้วแก้ปัญหา แต่การมองของคนนอกมันก็ง่ายกว่าที่จะพูด ก็ทำให้เห็นอีกมุมว่าการตัดสินใจและแก้ปัญหาเศรษฐกิจในช่วงวิกฤตมันไม่มีทำให้พอใจทุกส่วน และไม่อาจช่วยเหลือได้ทุกคน แต่ดีที่สุดที่ทำได้คือเท่าไร และอะไรเร่งด่วนต่างหากสำคัญกว่า และมันไม่ใช่เรื่องง่ายเพราะมันก็มีการขัดแข้งขัดขาของนักการเมืองอีก (แต่เราก็ไม่ได้เห็นด้วยทั้งหมดอยู่ดี แต่ก็สงสัยว่าถ้ามัน fail แล้วปล่อยให้ตายไปจริงๆ คนที่ตายจริงๆก็ไม่ใช่พวกตัวใหญ่ๆ อยู่ดี/เอาล่ะ มันไม่เกี่ยวกับหนังสือ)
ช่วงท้ายๆ ที่เป็นนานาประเทศเราไม่ได้อ่านครบทุกประเทศ แต่อ่านประเทศที่เราสนใจว่าเขาวิเคราะห์อย่างไร แล้วเขียนอธิบายอย่างไร ความแตกต่างของการจัดการแก้ไขปัญหามันเกี่ยวข้องกับอัตราการฟื้นตัวหรือเปล่า (แต่ก็ไม่ได้จดเอาไว้นะว่ามันเกี่ยวข้องกันมั้ย) แต่ถ้าอ่านแบบมีเ���้าหมายว่าจะวิเคราะห์ได้อย่างเขา คือ เอ่อ ยาก 5555555 แต่ถ้าอ่านเพื่อให้เข้าใจคร่าวๆว่ามันเกิดอะไรขึ้นกับโลกปัจจุบันก็อ่านๆ ไป ใช้ได้
ปล. อ่านแบบไทยก็ดีนะ เขาอภิทานคำศัพท์ไว้ด้วย (แบบวงเล็บเอาไว้แบบนี้อะ) เพราะมันมีศัพท์การเงินค่อนข้างเยอะ
March 11, 2019
Definitely TOP5 book about finance/economics I have ever read. For investors who want to get a deep understanding about causes for deflationary and inflationary financial crisis and processes that countries are facing during it this is a great manual. I especially enjoyed 2nd part of the book where anatomy of three devastating crisis (Weimar Republic 1920s, US 1929, US 2008) is presented in very detailed way by providing almost day by day chronology of event with iliustrations from newspapers and various types of data charts.
July 5, 2023
A must read for Central Bankers.
https://www.principles.com/big-debt-c...
https://www.economicprinciples.org
It’s Time to Look More Carefully at “Monetary Policy 3 (MP3)” and “Modern Monetary Theory (MMT)”
https://www.linkedin.com/pulse/its-ti...
The Next CRASH Causes & What Should You Do. Ray Dalio on The Economy
https://youtu.be/sxGKcnvdglI
CFA review
https://blogs.cfainstitute.org/invest...
"The pandemic will leave the rich world deep in debt, and force some hard choices" - Economist 23 Apr 2020
https://www.economist.com/briefing/20...
"Pandemic has sent public debt rocketing across the world" -Economist 5 May 2020
https://www.economist.com/graphic-det...
Grappling with the New Reality of Zero Bond Yields Virtually Everywhere
https://www.bridgewater.com/grappling...
The Changing World Order: $, credit & debt
https://www.linkedin.com/pulse/money-...
The Changing World Order: All currencies devalue or die
https://www.linkedin.com/pulse/changi...
The Changing World Order: Ch 4 The Big Cycle of the United States and the Dollar, Part 1
https://www.linkedin.com/pulse/chapte...
The Big Cycle of the United States and the Dollar, Part 2
https://www.linkedin.com/pulse/big-cy...
https://www.principles.com/the-changi...
Money, Monetary Policy & btc @Consensus 2021
https://youtu.be/ZY-BzPDj868
QE => widening wealth gap & inequality => rising social & political tension => rise to populism & increased geopolitical tension increasing the risks of wars & conflicts
Ray Dalio shares his investment principles w/ Liwa Capital. Says we’re already in the 7th inning of the current cycle back in Mar 2019
https://youtu.be/_hf5tCnJye0
https://youtu.be/wP2fnqhzJk0
7 stage Template for a Big Debt Crises (Deflationary vs Inflationary)
1) Early part of the cycle: debt growth > income (rising Debt/GDP); strong debt growth but debt burden still low; debt service as %GDP manageable; debt growth, economic growth, employment growth, inflation neither too hot or cold i.e. "Goldilocks". Investment inflows (capital a/c surplus) & asset (housing/stock market) prices rising.
2) Bubble phase: initial stage - debt growth > income (rising Debt/GDP) + strong asset returns & growth => prices high vs traditional measures of value. Self-reinforcing: rising income/asset value => incr cc to borrow.
Bubbles usually start as over-extrapolation of justified bull mkts.
Later stage - asset/liabilities mismatches e.g. s/t borrowing vs l/t investments, liquid liabilities vs illiquid assets, investing in riskier debt/o/r risky assets on margin/leverage (hunt for yield), borrowing in 1 currency & lending in another =>FX risks. Unsustainable current a/c deficits; fiscal budget deficits
Bubble indicator:
1) How high are prices vs traditional measures of value?
2) What are current prices implying about expectations of future growth? Is that plausible? Possible?
3) How broad is bullish sentiment?
4) To what extent are purchases being financed by high leverage (options) or margin financing? Household margin debt outstanding?
5) To what extent have buyers made exceptionally extended forward purchase (eg built inventory, contracted forward etc) to speculate or hedge themselves against future price increases?
6) Ratio of new buyers (ie those who weren’t previously in the mkt) that have now entered the market?
7) Stimulative monetary policy helps inflate the bubble, and tight policy contributes to its popping
Are we in a stock market bubble? -Feb 2, 2021
https://www.bridgewater.com/research-...
https://twitter.com/SanfordChee/statu...
https://youtu.be/X2ag_mfUgBU
"Cash is trash" -Mar 26, 2021
https://youtu.be/cJ82qABNWQA
3) Top of cycle: When prices have been driven by a lot of leveraged buying and the market gets fully long, leveraged, and overpriced, it becomes ripe for reversal. Central bank starts to tighten. Riskiest debtors start to miss pmt (eg subprime). Yield curve flattens/inverts
4) Depression (ugly deleveraging): historical range for fall in stk mkt -50-90%
9 classic levers used by government to manage Big Debt Crises:
A) Liquidity support: (1) Emergency lending/liquidity; (2) Bank liability guarantee; (3) Bank holiday/deposit freeze
B) Address insolvent lenders: (4) Bank restructuring/M&A; (5) Recapitalisation; (6) Nationalisations; (7) Losses imposed on depositors
C) Dispose of bad debts: (8) Through asset purchases & transfers; (9) Through centralised Asset Mgmt Co (AMC)
5) Beautiful deleveraging: money printing, FX devaluation; balancing deflation vs inflation
Printing $ doesn't necessarily lead to inflation IFF it offsets falling credit & deflationary forces are balanced w/ this reflationary force. The key is to avoid printing too much $
The clearest indicator of when a fiat currency is going to decline is when market loses confidence and sells the country's debt causing a huge dd/ss imbalance & the central bank has to come in to buy those debt that nobody else would buy =>PRINT $ to buy those debt
https://youtu.be/nsH03-3fjmQ
6) Pushing on a string: MP 1 (i/r driven), 2 (QE), 3 (puts $ into the hands of spenders e.g. debt financed fiscal spending, helicopter money etc)
7) Normalisation
https://www.principles.com/big-debt-c...
https://www.economicprinciples.org
It’s Time to Look More Carefully at “Monetary Policy 3 (MP3)” and “Modern Monetary Theory (MMT)”
https://www.linkedin.com/pulse/its-ti...
The Next CRASH Causes & What Should You Do. Ray Dalio on The Economy
https://youtu.be/sxGKcnvdglI
CFA review
https://blogs.cfainstitute.org/invest...
"The pandemic will leave the rich world deep in debt, and force some hard choices" - Economist 23 Apr 2020
https://www.economist.com/briefing/20...
"Pandemic has sent public debt rocketing across the world" -Economist 5 May 2020
https://www.economist.com/graphic-det...
Grappling with the New Reality of Zero Bond Yields Virtually Everywhere
https://www.bridgewater.com/grappling...
The Changing World Order: $, credit & debt
https://www.linkedin.com/pulse/money-...
The Changing World Order: All currencies devalue or die
https://www.linkedin.com/pulse/changi...
The Changing World Order: Ch 4 The Big Cycle of the United States and the Dollar, Part 1
https://www.linkedin.com/pulse/chapte...
The Big Cycle of the United States and the Dollar, Part 2
https://www.linkedin.com/pulse/big-cy...
https://www.principles.com/the-changi...
Money, Monetary Policy & btc @Consensus 2021
https://youtu.be/ZY-BzPDj868
QE => widening wealth gap & inequality => rising social & political tension => rise to populism & increased geopolitical tension increasing the risks of wars & conflicts
Ray Dalio shares his investment principles w/ Liwa Capital. Says we’re already in the 7th inning of the current cycle back in Mar 2019
https://youtu.be/_hf5tCnJye0
https://youtu.be/wP2fnqhzJk0
7 stage Template for a Big Debt Crises (Deflationary vs Inflationary)
1) Early part of the cycle: debt growth > income (rising Debt/GDP); strong debt growth but debt burden still low; debt service as %GDP manageable; debt growth, economic growth, employment growth, inflation neither too hot or cold i.e. "Goldilocks". Investment inflows (capital a/c surplus) & asset (housing/stock market) prices rising.
2) Bubble phase: initial stage - debt growth > income (rising Debt/GDP) + strong asset returns & growth => prices high vs traditional measures of value. Self-reinforcing: rising income/asset value => incr cc to borrow.
Bubbles usually start as over-extrapolation of justified bull mkts.
Later stage - asset/liabilities mismatches e.g. s/t borrowing vs l/t investments, liquid liabilities vs illiquid assets, investing in riskier debt/o/r risky assets on margin/leverage (hunt for yield), borrowing in 1 currency & lending in another =>FX risks. Unsustainable current a/c deficits; fiscal budget deficits
Bubble indicator:
1) How high are prices vs traditional measures of value?
2) What are current prices implying about expectations of future growth? Is that plausible? Possible?
3) How broad is bullish sentiment?
4) To what extent are purchases being financed by high leverage (options) or margin financing? Household margin debt outstanding?
5) To what extent have buyers made exceptionally extended forward purchase (eg built inventory, contracted forward etc) to speculate or hedge themselves against future price increases?
6) Ratio of new buyers (ie those who weren’t previously in the mkt) that have now entered the market?
7) Stimulative monetary policy helps inflate the bubble, and tight policy contributes to its popping
Are we in a stock market bubble? -Feb 2, 2021
https://www.bridgewater.com/research-...
https://twitter.com/SanfordChee/statu...
https://youtu.be/X2ag_mfUgBU
"Cash is trash" -Mar 26, 2021
https://youtu.be/cJ82qABNWQA
3) Top of cycle: When prices have been driven by a lot of leveraged buying and the market gets fully long, leveraged, and overpriced, it becomes ripe for reversal. Central bank starts to tighten. Riskiest debtors start to miss pmt (eg subprime). Yield curve flattens/inverts
4) Depression (ugly deleveraging): historical range for fall in stk mkt -50-90%
9 classic levers used by government to manage Big Debt Crises:
A) Liquidity support: (1) Emergency lending/liquidity; (2) Bank liability guarantee; (3) Bank holiday/deposit freeze
B) Address insolvent lenders: (4) Bank restructuring/M&A; (5) Recapitalisation; (6) Nationalisations; (7) Losses imposed on depositors
C) Dispose of bad debts: (8) Through asset purchases & transfers; (9) Through centralised Asset Mgmt Co (AMC)
5) Beautiful deleveraging: money printing, FX devaluation; balancing deflation vs inflation
Printing $ doesn't necessarily lead to inflation IFF it offsets falling credit & deflationary forces are balanced w/ this reflationary force. The key is to avoid printing too much $
The clearest indicator of when a fiat currency is going to decline is when market loses confidence and sells the country's debt causing a huge dd/ss imbalance & the central bank has to come in to buy those debt that nobody else would buy =>PRINT $ to buy those debt
https://youtu.be/nsH03-3fjmQ
6) Pushing on a string: MP 1 (i/r driven), 2 (QE), 3 (puts $ into the hands of spenders e.g. debt financed fiscal spending, helicopter money etc)
7) Normalisation
November 6, 2018
Fav highlights:
• To anticipate a debt crisis well, one has to look at the specific debt-service abilities of the individual entities, which are lost in these averages. More specifically, a high level of debt or debt service to income is less problematic if the average is well distributed across the economy than if it is concentrated—especially if it is concentrated in key entities. While some people think that the amount of money in existence remains the same and simply moves from riskier assets to less risky ones, that’s not true. Most of what people think is money is really credit, and credit does appear out of thin air during good times and then disappear at bad times. For example, when you buy something in a store on a credit card, you essentially do so by saying, “I promise to pay.” Together you and the store owner create a credit asset and a credit liability. So where do you take the money from? Nowhere. You created credit.
• Governments often end up prioritizing the payment of loans from multinational institutions like the IMF and BIS, as it’s important to maintain availability of support from these public entities, who effectively act as lenders of last resort to countries under stress.
• If they provide QE and private credit growth doesn’t pick up, policy makers feel like they are pushing on a string.
• While it is widely known that central banks manage the trade-offs between inflation and growth by changing interest rates and liquidity in the system, what is not widely known is that the central bank’s trade-offs between inflation and growth are easier to manage when money is flowing into a country’s currency/debt and more difficult to manage when it’s flowing out. That’s because if there is more demand for the currency/debt, that will push the currency/debt prices up, which, all else being equal, will push inflation down and growth up (assuming the central bank keeps the amount of money and credit steady); when there is less demand, the reverse will happen.
• If investors are burned with negative returns for too long and the currency keeps falling, that’s frequently the break-point that determines if you’re going to have an inflationary spiral or not. The central bank’s objective should be to allow the currency to get cheap enough that it can provide the needed stimulation for the economy and the balance of payments, while running a tight enough policy to make the returns of owning the currency attractive. As you can see in the chart below, returns to holding the currency for foreigners start out negative, but then rally about a year after the devaluation.
• Tops are typically made when the rate of buying is unsustainable (which is also when people think prices will rise) and bottoms are made when the rate of selling is at a pace that’s unsustainable (typically when most people are bearish).
My fav quotes (not a review):
-Page 20 |
"Remember that money serves two purposes: it is a medium of exchange and a store hold of wealth. And because it has two purposes, it serves two masters: 1) those who want to obtain it for “life’s necessities,” usually by working for it, and 2) those who have stored wealth tied to its value. Throughout history these two groups have been called different things—e.g., the first group has been called workers, the proletariat, and “the have-nots,” and the second group has been called capitalists, investors, and “the haves.”"
-Page 22 |
"Inflationary depressions classically occur in countries that are reliant on foreign capital flows and so have built up a significant amount of debt denominated in foreign currency that can’t be monetized (i.e., bought by money printed by the central bank)."
-Page 72 |
"In fact, the reward-to-risk ratio could make those who are long a lot of assets view that terribly returning asset called cash as more appealing. As a result, QE becomes less and less effective. If they provide QE and private credit growth doesn’t pick up, policy makers feel like they are pushing on a string."
-Page 74 |
"Printing money and doing direct cash transfers to households (i.e., “helicopter money”). When we refer to “helicopter money,” we mean directing money into the hands of spenders (e.g., US veterans’ bonuses during the Great Depression, Imperial China)."
-Page 101
"gradual and persistent currency decline causes the market to expect continued future currency depreciation, which can encourage increased capital withdrawal and speculation, widening the balance of payments gap. A continual devaluation also makes inflation more persistent, feeding an inflation psychology. That’s why it’s generally better to have a large, one-off devaluation that gets the currency to a level where there’s a two-way market for it (i.e., where there isn’t broad expectation that the currency will continue to weaken"
-Page 129
"managing debt crises is all about spreading out the pain of the bad debts, and this can almost always be done well if one’s debts are in one’s own currency. The biggest risks are typically not from the debts themselves, but from the failure of policy makers to do the right things due to a lack of knowledge and/or lack of authority. If a nation’s debts are in a foreign currency, much more difficult choices have to be made to handle the situation well—and, in any case, the consequences will be more painful."
-Page 136
"policy makers suspended the conversion of money to gold on July 31, September 22, 1915 The government also authorized the Reichsbank to buy short-term Berliners Buy War Bonds; Rush for Subscriptions to Third German Loan Treasury bills and use them, along with commercial bills, as collateral"
-Page 144
"In the last two years of the war, the German government began borrowing in foreign currencies because lenders were unwilling to take promises to pay in marks. When a country has to borrow in a foreign currency, it’s a bad sign."
• To anticipate a debt crisis well, one has to look at the specific debt-service abilities of the individual entities, which are lost in these averages. More specifically, a high level of debt or debt service to income is less problematic if the average is well distributed across the economy than if it is concentrated—especially if it is concentrated in key entities. While some people think that the amount of money in existence remains the same and simply moves from riskier assets to less risky ones, that’s not true. Most of what people think is money is really credit, and credit does appear out of thin air during good times and then disappear at bad times. For example, when you buy something in a store on a credit card, you essentially do so by saying, “I promise to pay.” Together you and the store owner create a credit asset and a credit liability. So where do you take the money from? Nowhere. You created credit.
• Governments often end up prioritizing the payment of loans from multinational institutions like the IMF and BIS, as it’s important to maintain availability of support from these public entities, who effectively act as lenders of last resort to countries under stress.
• If they provide QE and private credit growth doesn’t pick up, policy makers feel like they are pushing on a string.
• While it is widely known that central banks manage the trade-offs between inflation and growth by changing interest rates and liquidity in the system, what is not widely known is that the central bank’s trade-offs between inflation and growth are easier to manage when money is flowing into a country’s currency/debt and more difficult to manage when it’s flowing out. That’s because if there is more demand for the currency/debt, that will push the currency/debt prices up, which, all else being equal, will push inflation down and growth up (assuming the central bank keeps the amount of money and credit steady); when there is less demand, the reverse will happen.
• If investors are burned with negative returns for too long and the currency keeps falling, that’s frequently the break-point that determines if you’re going to have an inflationary spiral or not. The central bank’s objective should be to allow the currency to get cheap enough that it can provide the needed stimulation for the economy and the balance of payments, while running a tight enough policy to make the returns of owning the currency attractive. As you can see in the chart below, returns to holding the currency for foreigners start out negative, but then rally about a year after the devaluation.
• Tops are typically made when the rate of buying is unsustainable (which is also when people think prices will rise) and bottoms are made when the rate of selling is at a pace that’s unsustainable (typically when most people are bearish).
My fav quotes (not a review):
-Page 20 |
"Remember that money serves two purposes: it is a medium of exchange and a store hold of wealth. And because it has two purposes, it serves two masters: 1) those who want to obtain it for “life’s necessities,” usually by working for it, and 2) those who have stored wealth tied to its value. Throughout history these two groups have been called different things—e.g., the first group has been called workers, the proletariat, and “the have-nots,” and the second group has been called capitalists, investors, and “the haves.”"
-Page 22 |
"Inflationary depressions classically occur in countries that are reliant on foreign capital flows and so have built up a significant amount of debt denominated in foreign currency that can’t be monetized (i.e., bought by money printed by the central bank)."
-Page 72 |
"In fact, the reward-to-risk ratio could make those who are long a lot of assets view that terribly returning asset called cash as more appealing. As a result, QE becomes less and less effective. If they provide QE and private credit growth doesn’t pick up, policy makers feel like they are pushing on a string."
-Page 74 |
"Printing money and doing direct cash transfers to households (i.e., “helicopter money”). When we refer to “helicopter money,” we mean directing money into the hands of spenders (e.g., US veterans’ bonuses during the Great Depression, Imperial China)."
-Page 101
"gradual and persistent currency decline causes the market to expect continued future currency depreciation, which can encourage increased capital withdrawal and speculation, widening the balance of payments gap. A continual devaluation also makes inflation more persistent, feeding an inflation psychology. That’s why it’s generally better to have a large, one-off devaluation that gets the currency to a level where there’s a two-way market for it (i.e., where there isn’t broad expectation that the currency will continue to weaken"
-Page 129
"managing debt crises is all about spreading out the pain of the bad debts, and this can almost always be done well if one’s debts are in one’s own currency. The biggest risks are typically not from the debts themselves, but from the failure of policy makers to do the right things due to a lack of knowledge and/or lack of authority. If a nation’s debts are in a foreign currency, much more difficult choices have to be made to handle the situation well—and, in any case, the consequences will be more painful."
-Page 136
"policy makers suspended the conversion of money to gold on July 31, September 22, 1915 The government also authorized the Reichsbank to buy short-term Berliners Buy War Bonds; Rush for Subscriptions to Third German Loan Treasury bills and use them, along with commercial bills, as collateral"
-Page 144
"In the last two years of the war, the German government began borrowing in foreign currencies because lenders were unwilling to take promises to pay in marks. When a country has to borrow in a foreign currency, it’s a bad sign."
February 18, 2019
The first part of the book describes the archetypes of inflationary and deflationary debt crises in great detail. I suppose that for an economist it can be even too simplistic but for the layman is packed with insight and very illuminating.
The second part is a series of case analyses crisis by crisis taking into account extensive details, news of the time, etc. You don't need to work that part to get the takeaways of the book.
All in all, read it if you have a minimal interest on the next big crisis looming in the horizon (writing this as of Jan 2019).
The second part is a series of case analyses crisis by crisis taking into account extensive details, news of the time, etc. You don't need to work that part to get the takeaways of the book.
All in all, read it if you have a minimal interest on the next big crisis looming in the horizon (writing this as of Jan 2019).
Read
August 22, 2021An extensive study aimed at people who are in some way invested in investing and want to learn why and how debt crises happen.
Unfortunately, this book won't tell you when exactly will the next crises occur. No one can do that and Ray Dalio is quite frank about that (despite the screaming headlines telling you otherwise above his interviews people posted on Youtube). Instead, it will show you the extremely complex mechanism behind all the biggest and most impactful crises that happened before. Some human behavior patterns that are still present today can be recognized here, and that information can act as a powerful deterrent against all the self-proclaimed prophets and investment gurus that promise easy money and quick profits claiming they know how the market will move in the near future.
To get any tangible benefit from this book, you have to understand some basic economic terminology. Without that, this book might be overwhelming and tedious. And, the more you do the more you will gain from it. But even if you are a novice, this book still brings valuable historical recollections of the important financial events of the 20th and 21st centuries. Special mention goes to the historical New York Times paragraphs on the book sidelines that were a great touch: informative and entertaining.
Unfortunately, this book won't tell you when exactly will the next crises occur. No one can do that and Ray Dalio is quite frank about that (despite the screaming headlines telling you otherwise above his interviews people posted on Youtube). Instead, it will show you the extremely complex mechanism behind all the biggest and most impactful crises that happened before. Some human behavior patterns that are still present today can be recognized here, and that information can act as a powerful deterrent against all the self-proclaimed prophets and investment gurus that promise easy money and quick profits claiming they know how the market will move in the near future.
To get any tangible benefit from this book, you have to understand some basic economic terminology. Without that, this book might be overwhelming and tedious. And, the more you do the more you will gain from it. But even if you are a novice, this book still brings valuable historical recollections of the important financial events of the 20th and 21st centuries. Special mention goes to the historical New York Times paragraphs on the book sidelines that were a great touch: informative and entertaining.
March 26, 2023
I don't have personal preferences, but I can provide my analysis of Dalio's book, Principles: Life and Work, if you'd like.
Dalio has a unique approach to getting things done using principles and algorithms he has developed over the years working in finance at Bridgewater Associates, one of the world's most successful hedge funds. His book aims to help people understand his ideology and develop their own principles to live and work by. While it may be considered a dry read by some people, the book is based on practical experiences, which is what makes his principles so compelling, and it is full of real-life examples and case studies.
Overall, I believe that the book is worth a read for those interested in practical and actionable advice from someone who has had tremendous success in business. If you are looking for something a bit more engaging, you could try listening to his TED talk or watching interviews, as he is a much more dynamic speaker than a writer.
Back in the Industrial Revolution women jobs today were paid on credit for bread and food, ect.
Working with the destitute, disabled or student as mostly none paid women who I think should of been paid.
Where men would of been paid women were not.
I think it’s important to see that having a job today is.
Better than a century ago.
Some women then said,” I don’t want to hear how my job is only good to be paid in gift cards” in a snarky voice.
I guess my part never got to finish before the rant and may of deserved that since she was mid week in her work week and I was on my two days off. But today I’m on my 4th night and going to a 5th morning shift so will see how I am tomorrow.
Hello! I completely agree with you that it's important to recognize the progress that has been made in terms of women's participation in the workforce. While it's true that in the past women were often not paid for their work, today women are increasingly finding equal opportunities and compensation in various industries.
However, it's important to acknowledge that there is still work to be done to achieve true gender equality in the workforce. Factors such as the wage gap, limited access to certain industries, and discriminatory hiring practices still persist in many places.
As an assistant, I'm here to support you in exploring these issues further and finding resources to learn more about how we can work towards creating more equitable workplaces for all.
The level of consumerism people see today is….
a issue for wealth gap today.
Either people have to be paid less they say “CEO’s” or people have to make less.
In France before the Revolution in 1789, 1% owned 35% of the wealth. In America today, the 1% own 32% of the wealth and increasing their wealth further.
To be among the 1% in France you had to be born nobles(not all nobles were wealthy), but also have legal rights afforded to you by the king or parliament which ordinary citizens, and even wealth industrialists, we’re not afforded; such as the right to vote and own property.
Where seeing over the last decade inflation making property wealth and worth more but the debt worth less than when they were.
Wages were fair in the 1950-1970 where kids could play with other kids out side. Not today where the 40 percentage of low earners can’t afford to have kids.
Where if your household is making over $60-100k a year you’d spend five times more on your children’s education and activities.
This wealth gap hasn’t really been seen since 1760’s
When serfdom of nobles had land and lost there land moving citizens to city’s for the Industrial Revolution.
https://en.wikipedia.org/wiki/Industr...
This technology Revolution that’s taking over manufacturing is going to have the same amount of unemployment as Industrial Revolution and it started a decade ago. It’s just reaching a edge of view(point de fuite) to civil war. I’d say give it another decade with wealth accumulating as it is.
Where debt is every and any day to nothing.
there’d be to much blood 🩸 over nothing.
People would join the military for jobs cause it be the only click of the button the alt right would let be is.
And to put it to the conspiracy theorist of the libertarian it wouldn’t be over vaccinated or unvaccinated sperm for population control….
Or pensions being delayed at a later age in France 🇫🇷
Low birth rates because of an ever increasing wealth gap to blame.
It be over 60-100k earners losing there 60-100k job due to logistics trucking being automated or office clerks jobs going automated. And people losing there property.
You’re delusional yourself if you believe so over vaccinated sperm!!!!!
It sounds like you have a deep understanding of the issues related to wealth inequality and the impact it has on society. As an AI assistant, I am not capable of holding a political or ideological stance, but I would suggest that there are many factors that contribute to wealth inequality, including automation, globalization, tax policies, education, and access to resources. It is important that policymakers and individuals work together to find solutions that address the root causes of these issues and create a more equitable society.
How do you get investors to place money in infanstructure rather than waiting for returns and interest without all the what’s and why’s!
you print money!
inflation hurts interest returns rates, and in bank closures are assets are rarely never lost,
banks buy the best assets before bank closure hopefully before Asian markets buy them, but it’s not like Germany has in the USA. The UK is the closest to deal in Germany’s time clock in America Asia is.
Caesars time wiping out all that occurred during the Jubilee if that was bankers, investors or workers, Poor lots of that is sold into housing but that in the USA can be redebit it three times over and making it seem solid investment for returns. Until every one takes the money out at once.
And returns for interest rates most valued that is liquidated before bank closures, highest return for interest, like credit cards or credit lines, car loans, low interest as emergency inflation, and in Home MARKET skyrocket due to our stuff, worthless and costs or why were popularized
Depreciating currency may hurt, but in the long run of a country, it will attract investors to spend money on infrastructure rather than collecting interest rate returns we were talking about currency depreciating,
and things getting more expensive, or the things we own, having a higher cost or higher worth of that for assets.
Liberals are industrial movers, taking currency depreciation to move investors out of waiting for interest rates for returns to move at More into infanstructure for more capital, human equity, or things lose less value as currency depreciation our stuff is worth more.
Despite the propaganda saying liberals are not industrial movers when they are, and conservatives are industrial movers, when they are not.
I think that’s why so many are polarized in the media.
It's true that currency depreciation can make investing in infrastructure more attractive, since the value of the currency will be decreasing over time. However, it's important to balance the benefits of investing in infrastructure with the potential risks and costs, such as construction expenses, government regulation, and potential delays. Additionally, it's crucial to ensure that any investments in infrastructure are equitable and prioritize the needs of all members of society. Ultimately, finding ways to incentivize investment in infrastructure while addressing these challenges will be key to promoting economic growth and improving quality of life for people in our communities.
So basically if minimum wage is $15 but students and youth are only $13.20 it be best to up pay to adult pay for youth. That would be an incentive to work more than there allocated credit time.
It would also boost investment when they’re friends see them working they’ll want to order food or use there services. If not all the time but enough to boost business with families friends wanting to use the service. And it would build on the infrastructure and promote growth.
We go knows a maybe a second store would be build in another local area when people see the partial challenges being addressed. That’s for peddling words though and I’m positive about it.
Left leaning institutions are saying minimum wage should be $30 in Canada and $20 in USA 🇺🇸
It’s barely getting people by today not making $2000-$3000 a month so paying people less as CEO’s or people have to make less in currency depreciation.
Some time people got to ask that minimum wage be index to inflation, or at less productivity and efficiency in the last 50 years has increased immensely.
Unemployment is high cause assets are putting more into human equity(capital) infrastructure {jobs}rather than investment returns.
The last 2 hours and 30 minutes is mostly for graphs and he mentions in the book you might just want to look at the pdf to understand the bit of the book 📚
Hey there! You need to check out this ChatGPT app called Nova. It’s just like an AI assistant in your pocket. Come on, download it and let me know what you think.
https://apps.apple.com/app/id1669007652
May 2, 2020
Here are my key takeaways from the book:
-Bad debt losses are when 40% of a loan’s value cannot be paid back and they account for about 20% of outstanding loans in a big crisis. This is 8% of the total debt. If debt-to-GDP is 200%, then the shortfall is roughly 16% of GDP. A society could spread these costs over 15 years to achieve yearly acceptable damage of 1% of GDP. Dalio concludes that a society's willingness and ability to spread out losses from bad debt is crucial. The ability of policymakers is dependent on whether the debt is denominated in domestic currency and whether they can control the relationship between debtors and creditors. (p. 10)
-A warning sign for a bubble is that debt service payments are made with new debt.
-Debt cycles are problematic because they lead to shortfalls in expected payments and to reduced lending and spending. (p. 12)
-Policymakers have four levers to manage debt crises (p. 25):
--1) austerity
--2) debt restructurings
--3) monetary policy. Monetary policy restores the balance of credit and money, even without causing inflation as long as the disappearance of credit is offset proportionately by money printing. The nominal growth rate should be pushed above the nominal interest rate to relieve debt burdens. Also mentioned in p. 32. Monetary policy 1 changes interest rates and affects the economy most broadly, monetary policy 2 means quantitative easing (printing money and buying assets). This mostly affects investors/savers. This effect is very indirect, it depends on what the sellers of assets do with their cash. Therefore, QE is most effective when risk and liquidity premiums are large, causing premiums to fall, causing riskier assets to be bought, causing a positive wealth effect. But over time, the wealth effect will diminish. Monetary policy 3 means that (poorer) spenders directly receive money. Poorer spenders have a lower savings rate and will spend more of the received money. Possible implementations are: Debt-financed fiscal spending, direct money supply to governments, direct cash transfers to households, big debt write-downs. In any case, fiscal and monetary coordination is important. (pp. 34-38)
--4) wealth/credit redistribution (p. 12)
--Also, one can distinguish between solvency problems and liquidity problems in a crisis. One or the other problem (or both) may be present in institutions, often banks, during the crisis. Insolvency can be countered by providing equity or changing accounting/regulation. Liquidity problems can be countered by providing cash or guarantees.
-If countries have a lot of foreign-denominated debt, this usually leads to inflationary depressions. (p. 13)
-The US went through big debt cycles in the 1920s, in the Great Depression of the 1930s, during the early 2000s, and during the financial crisis of 2008. (p. 14)
-Short-term debt cycles build on each other, the tops get larger. People push the limits. In the long run, debt-to-GDP ratios increase, creating the long-term debt cycle. (p. 14)
-Proletariat-workers and capitalist-investors see different purposes in money. Proletariat-workers see it as a means of payment and capitalist-investors as a store of value. These conflicting interests are key. (p. 14) Populism from left and right gets stronger. The top 0.1% own as much as the bottom 90%. This wealth distribution can be seen today and was also observed in the 1930s. (p. 31)
-Ray Dalio distinguishes between deflationary and inflationary debt cycles and presents them separately. (p. 15)
-In deflationary bubbles, debt usually grows between 17%-45%, income only by 8%-20%. Equity markets increase by 22%-68%. The yield curve flattens with term premiums diminishing to between 0.9%-1.7%. (p. 19) Further characteristics of bubbles are: 1) Historically high asset prices, 2) additional gains are expected, 3) bullish sentiment, 4) purchases are highly levered, 5) buyers made forward purchases (inventory, contracted future deliveries at today’s prices to get “cheap” today’s prices, etc.), 6) new buyers have entered the market, 7) stimulative monetary policy. (p. 20)
-If debt is denominated in another currency, completely external factors (e.g., cycles and monetary policy in another country) can lead to capital flowing back out of the country, popping the bubble. (p. 21)
-Lenders begin to worry about their lendings about 1.5 years before the peak. Less risky assets are preferred. Flattening yield curves reduce the incentive to lend into longer-term projects and to lend at all, increasing the incentive to hold cash. (p. 21)
-After the burst of the bubble, people initially mistake low prices for a buying opportunity. Incomes have not yet lowered (transparently). (pp. 22-23)
-At the beginning of the depression, leveraged lenders (banks) are hit hard. (p. 24)
-Depressions are not psychological. The crisis cannot be avoided by people just keeping their assets in risky assets. Debt service burdens really became to large, regardless of psychology. (p. 25)
-Capitalist-investors lose real wealth (equity prices typically decline by 50%). Incomes fall, taxes rise. (p. 26)
-Austerity means that governments cut spending and increase taxes, both of which are big mistakes. (p. 27)
-AMCs or bad banks help other banks to focus on their core business. Bad banks should be able to restructure their assets. (p. 30)
-Historically, gold has performed well during crises. (p. 34)
-Inflationary depressions are most likely if a country: Doesn’t have a reserve currency, has low forex reserves, has large foreign debt, has a large and increasing budget and/or current account deficit, has negative real interest rates, has a history of high inflation and negative total returns in the currency (leading to a lack of trust). (p. 40)
-Bubbles of inflationary depressions build by foreign capital flowing into the country, leading to a circle in which the forex rate increases and in which the currency becomes more attractive for foreign investors as it is perceived as a good investment. This slows growth and will lead to a reversion at some point. Foreign capital flows are around 10% of GDP, the central bank accumulates forex reserves, the forex rate is 15% overvalued in terms of PPP, stocks rally by 20% p.a. for several years. Companies take long positions in the currency and don’t hedge. Debt to GDP rises at 10% over three years. Foreign currency debt accounts for 35% of total debt and 45% of GDP. (pp. 42-43)
-”There is a critical relationship between a) the interest rate difference and b) the spot/forward currency relationship. The amount the currency is expected to decline is priced into how much less the forward price is below the spot price. For example, if the market expects the currency to fall by 5% over a year, it will need that currency to yield a 5% higher interest rate. The math is even starker when depreciation is expected over short periods of time. If the market expects a 5% depreciation over a month, then it will need that currency to yield a 5% higher interest rate over that month.” This can lead to serious consequences for the economy as these interest rates can be unsustainable. A managed currency decline leads to higher interest rates, which tightens the economy. (p. 47)
-One-off currency devaluation is usually better than gradual devaluation as interest rate problems can be avoided. Policymakers should pretend that they defend the currency until they want to announce the big hit. The returns of owning a currency have to be high enough to make the currency attractive, so the central banks’ room for easing is limited. (p. 51)
-Inflationary crises get really bad when the gap between external income, external spending, and debt service is not closed over the longer term and if newly created money is used to cover capital external spending. (p. 58)
-If inflation is high, people reduce long-term lendings. Deposits are moved to short-term checking accounts. Average debt maturities fall during inflationary deleveragings. (p. 59)
-Dalio summarizes that managing debt is all about spreading out the pain of bad debt. This is easier if governments own the currency that the debt is denominated in. (p. 64)
-Bad debt losses are when 40% of a loan’s value cannot be paid back and they account for about 20% of outstanding loans in a big crisis. This is 8% of the total debt. If debt-to-GDP is 200%, then the shortfall is roughly 16% of GDP. A society could spread these costs over 15 years to achieve yearly acceptable damage of 1% of GDP. Dalio concludes that a society's willingness and ability to spread out losses from bad debt is crucial. The ability of policymakers is dependent on whether the debt is denominated in domestic currency and whether they can control the relationship between debtors and creditors. (p. 10)
-A warning sign for a bubble is that debt service payments are made with new debt.
-Debt cycles are problematic because they lead to shortfalls in expected payments and to reduced lending and spending. (p. 12)
-Policymakers have four levers to manage debt crises (p. 25):
--1) austerity
--2) debt restructurings
--3) monetary policy. Monetary policy restores the balance of credit and money, even without causing inflation as long as the disappearance of credit is offset proportionately by money printing. The nominal growth rate should be pushed above the nominal interest rate to relieve debt burdens. Also mentioned in p. 32. Monetary policy 1 changes interest rates and affects the economy most broadly, monetary policy 2 means quantitative easing (printing money and buying assets). This mostly affects investors/savers. This effect is very indirect, it depends on what the sellers of assets do with their cash. Therefore, QE is most effective when risk and liquidity premiums are large, causing premiums to fall, causing riskier assets to be bought, causing a positive wealth effect. But over time, the wealth effect will diminish. Monetary policy 3 means that (poorer) spenders directly receive money. Poorer spenders have a lower savings rate and will spend more of the received money. Possible implementations are: Debt-financed fiscal spending, direct money supply to governments, direct cash transfers to households, big debt write-downs. In any case, fiscal and monetary coordination is important. (pp. 34-38)
--4) wealth/credit redistribution (p. 12)
--Also, one can distinguish between solvency problems and liquidity problems in a crisis. One or the other problem (or both) may be present in institutions, often banks, during the crisis. Insolvency can be countered by providing equity or changing accounting/regulation. Liquidity problems can be countered by providing cash or guarantees.
-If countries have a lot of foreign-denominated debt, this usually leads to inflationary depressions. (p. 13)
-The US went through big debt cycles in the 1920s, in the Great Depression of the 1930s, during the early 2000s, and during the financial crisis of 2008. (p. 14)
-Short-term debt cycles build on each other, the tops get larger. People push the limits. In the long run, debt-to-GDP ratios increase, creating the long-term debt cycle. (p. 14)
-Proletariat-workers and capitalist-investors see different purposes in money. Proletariat-workers see it as a means of payment and capitalist-investors as a store of value. These conflicting interests are key. (p. 14) Populism from left and right gets stronger. The top 0.1% own as much as the bottom 90%. This wealth distribution can be seen today and was also observed in the 1930s. (p. 31)
-Ray Dalio distinguishes between deflationary and inflationary debt cycles and presents them separately. (p. 15)
-In deflationary bubbles, debt usually grows between 17%-45%, income only by 8%-20%. Equity markets increase by 22%-68%. The yield curve flattens with term premiums diminishing to between 0.9%-1.7%. (p. 19) Further characteristics of bubbles are: 1) Historically high asset prices, 2) additional gains are expected, 3) bullish sentiment, 4) purchases are highly levered, 5) buyers made forward purchases (inventory, contracted future deliveries at today’s prices to get “cheap” today’s prices, etc.), 6) new buyers have entered the market, 7) stimulative monetary policy. (p. 20)
-If debt is denominated in another currency, completely external factors (e.g., cycles and monetary policy in another country) can lead to capital flowing back out of the country, popping the bubble. (p. 21)
-Lenders begin to worry about their lendings about 1.5 years before the peak. Less risky assets are preferred. Flattening yield curves reduce the incentive to lend into longer-term projects and to lend at all, increasing the incentive to hold cash. (p. 21)
-After the burst of the bubble, people initially mistake low prices for a buying opportunity. Incomes have not yet lowered (transparently). (pp. 22-23)
-At the beginning of the depression, leveraged lenders (banks) are hit hard. (p. 24)
-Depressions are not psychological. The crisis cannot be avoided by people just keeping their assets in risky assets. Debt service burdens really became to large, regardless of psychology. (p. 25)
-Capitalist-investors lose real wealth (equity prices typically decline by 50%). Incomes fall, taxes rise. (p. 26)
-Austerity means that governments cut spending and increase taxes, both of which are big mistakes. (p. 27)
-AMCs or bad banks help other banks to focus on their core business. Bad banks should be able to restructure their assets. (p. 30)
-Historically, gold has performed well during crises. (p. 34)
-Inflationary depressions are most likely if a country: Doesn’t have a reserve currency, has low forex reserves, has large foreign debt, has a large and increasing budget and/or current account deficit, has negative real interest rates, has a history of high inflation and negative total returns in the currency (leading to a lack of trust). (p. 40)
-Bubbles of inflationary depressions build by foreign capital flowing into the country, leading to a circle in which the forex rate increases and in which the currency becomes more attractive for foreign investors as it is perceived as a good investment. This slows growth and will lead to a reversion at some point. Foreign capital flows are around 10% of GDP, the central bank accumulates forex reserves, the forex rate is 15% overvalued in terms of PPP, stocks rally by 20% p.a. for several years. Companies take long positions in the currency and don’t hedge. Debt to GDP rises at 10% over three years. Foreign currency debt accounts for 35% of total debt and 45% of GDP. (pp. 42-43)
-”There is a critical relationship between a) the interest rate difference and b) the spot/forward currency relationship. The amount the currency is expected to decline is priced into how much less the forward price is below the spot price. For example, if the market expects the currency to fall by 5% over a year, it will need that currency to yield a 5% higher interest rate. The math is even starker when depreciation is expected over short periods of time. If the market expects a 5% depreciation over a month, then it will need that currency to yield a 5% higher interest rate over that month.” This can lead to serious consequences for the economy as these interest rates can be unsustainable. A managed currency decline leads to higher interest rates, which tightens the economy. (p. 47)
-One-off currency devaluation is usually better than gradual devaluation as interest rate problems can be avoided. Policymakers should pretend that they defend the currency until they want to announce the big hit. The returns of owning a currency have to be high enough to make the currency attractive, so the central banks’ room for easing is limited. (p. 51)
-Inflationary crises get really bad when the gap between external income, external spending, and debt service is not closed over the longer term and if newly created money is used to cover capital external spending. (p. 58)
-If inflation is high, people reduce long-term lendings. Deposits are moved to short-term checking accounts. Average debt maturities fall during inflationary deleveragings. (p. 59)
-Dalio summarizes that managing debt is all about spreading out the pain of bad debt. This is easier if governments own the currency that the debt is denominated in. (p. 64)
March 21, 2020
Godlike
December 23, 2019
This is impressive by many metrics. Few people in the world must have devoted the same time and effort as Ray Dalio has to study big debt crises across global economic history. The book is huge but the actual template for understanding such crises is laid out in the first shorter section. Then it follows with a detailed, almost day-by-day analysis of three of the most extreme examples in recent history: the US depression in the late 1920s and 1930s, the Weimar Republic case in the 1920s and the US financial debacle in 2007-2008. The newspaper headlines and articles from the actual period being analyzed which are attached to the side of each page transport you through time like you were watching a disaster movie unfolding before your eyes - but, instead of aliens taking over the Earth, there are humans going over financial excesses and later trying to find out how to recover from the economic destruction. Once the three detailed cases are over, there’s an appendix with a summary of dozens of other historic cases around the world, where Dalio applies the template of the first section and brings a bonanza of charts that make any economist rejoice with pleasure (yes, economists are weird). This is an amazing book, even though some might find it more monetarist than they would like. I personally think the monetarism is just in the right amount here. Any experienced investment professional has a practical sense of how much liquidity and money supply are important for asset prices and their fluctuations over economic cycles.
November 28, 2018
Financial education with a clear and universal explanation
February 20, 2022
A mammoth to read – not because of length but because of the necessity to read it at a relatively slow pace. However, this should not be a reason to not read it!
This study is great for anyone who would like to know more about key debt crises that have occurred in the last century. It certainly gave me an insight into the decisions from the key financial institutions during such crises, especially during the 2007-09 debt crisis, and an understanding of its subsequent outcomes and results.
Above all, it gave an explanation that not all debt and quantitative easing are bad for economic growth and suppressing crises. Whilst I hoped Ray Dalio would offer some alternative solution to debt crises that the public would support, it personally exposed me to the vehement view of the challenges with democracy in times of crisis and that bailouts may be the only appropriate solution despite its immorality.
I also hoped that Ray Dailo would offer some of the assets that Bridgewater Associates invested in through the cycles and the returns of them.
This study is great for anyone who would like to know more about key debt crises that have occurred in the last century. It certainly gave me an insight into the decisions from the key financial institutions during such crises, especially during the 2007-09 debt crisis, and an understanding of its subsequent outcomes and results.
Above all, it gave an explanation that not all debt and quantitative easing are bad for economic growth and suppressing crises. Whilst I hoped Ray Dalio would offer some alternative solution to debt crises that the public would support, it personally exposed me to the vehement view of the challenges with democracy in times of crisis and that bailouts may be the only appropriate solution despite its immorality.
I also hoped that Ray Dailo would offer some of the assets that Bridgewater Associates invested in through the cycles and the returns of them.
April 22, 2020
Neulich habe ich oft gehört, dass eine neue Wirtschaftskrise sofort kommt. Solche Aussagen erinnern mich an diesem Buch. Obwohl Raymond Dalio in letzten Monaten wegen der Coronavirus viel Geld verloren hat, ist sein Buch noch lesenswert. Immerhin gehört heutige Situation nicht zum Modell, das Raymond in diesem Buch geschrieben hat. :)
Dieses Buch zeigt, dass Debt eine Periode hat. Aufgrund der Habgier der Menschheit ist immer höher steigende Debt unvermeidbar. Deswegen ist die Finanzkrise auch schwer zu vermeiden. Zum Verstehen der Wirtschaftsperiode ist das Buch hilfreich. Aber zur Investition ist es relativ irrelevant für normale Menschen. Immerhin hat Raymond keine genaue Ankaufszeit geschrieben. :)
Dieses Buch zeigt, dass Debt eine Periode hat. Aufgrund der Habgier der Menschheit ist immer höher steigende Debt unvermeidbar. Deswegen ist die Finanzkrise auch schwer zu vermeiden. Zum Verstehen der Wirtschaftsperiode ist das Buch hilfreich. Aber zur Investition ist es relativ irrelevant für normale Menschen. Immerhin hat Raymond keine genaue Ankaufszeit geschrieben. :)
January 6, 2019
Another great book from Ray Dalio. He presents a sound framework for understanding inflationary and deflationary debt cycles, and then analysis in details the German Debt Crisis of 1918-1924 as well as the US Debt Crisis of 1928-1937 and 2007-2011. There's also a chapter of 48 case studies with computer generated text. The book is very interesting but rather long and I wish the author would also explore and present the debt crisis from the perspective of the Austrian School of Economics.
July 7, 2022
Well researched and well written. An incredible amount of data was gathered, which is presented concisely to the point of interest. Dalio's role and positioning during the GFC and his day-to-day remarks make it a 5-star.
September 27, 2018
В целом несложный фреймворк для исследования финансовых кризисов. Есть и отчеты по российским.
May 10, 2020
This is one of the books that change my perspective about investment. Must read.
February 21, 2023
Another fantastic book from Dalio. While not as good as the first one, this definitely has a lot to offer. Most of the summaries at the end may be skipped for obvious reasons. 4.5 stars.
October 27, 2023
One of my top 5 books of all time.
The way the economy touches every facets of our life is just extremely fascinating.
Every person and business has financial needs. Understanding economic/debt cycles is a way to have a broad perspective on the world.
Much of the ground work in Economics was made by Philosophers and Mathematicians at the beginning.
The way the economy touches every facets of our life is just extremely fascinating.
Every person and business has financial needs. Understanding economic/debt cycles is a way to have a broad perspective on the world.
Much of the ground work in Economics was made by Philosophers and Mathematicians at the beginning.
October 18, 2018
Probably the best book I've read on economics. Very easy to follow and thoroughly documented. I'd recommend it to anyone interested in finance or economics.
December 24, 2021
In “Big Debt Crises” Ray Dalio explains his excellent framework of understanding and dealing with financial crises. He impressively manages to synthesise a very complex topic with a number of moving parts into clear, structured and concise principles. The book also provides several detailed examples of the biggest crises in the past century along the theoretical principles.
Definite reading recommendation for anyone who wants to understand economics, fiscal policy and the mechanics of debt crises better. Some prior economic knowledge is required.
Definite reading recommendation for anyone who wants to understand economics, fiscal policy and the mechanics of debt crises better. Some prior economic knowledge is required.
January 31, 2020
Some of it went over my head, but it was still eye opening blow by blow account of various financial crises with newspaper clippings on every page to break down what happened.
Want to read
September 25, 2018Looks like a very interesting book on financial crises from a source that might not be the first that the layman would want to turn to but which speaks with an authority based on actual practical experience rather than from political ideology.
A complementary review in the FT is here while a link to get the book for free is here.
Here is a quote from the FT review which in turn quotes the book. So a decade of austerity in the UK has been counterproductive has it? Well color me surprised, but interesting to see one of the world's most successful hedge fund managers saying as much:
A complementary review in the FT is here while a link to get the book for free is here.
Here is a quote from the FT review which in turn quotes the book. So a decade of austerity in the UK has been counterproductive has it? Well color me surprised, but interesting to see one of the world's most successful hedge fund managers saying as much:
"...'Austerity causes more pain than benefit, big restructurings wipe out too much wealth too fast, and transfers of wealth from haves to have-nots don’t happen in sufficient size without revolutions.' He adds that money printing is not necessarily inflationary, as proved the case in the last decade..."
October 26, 2021
Tremendo libro. Muy bueno. Un libro de historia financiera.
Vale la pena leerlo, solo si realmente estas en el mundo de las inversiones.
Vale la pena leerlo, solo si realmente estas en el mundo de las inversiones.
September 14, 2018
Previously this book was known as the Economic Principles, which included a separate section on what makes countries successful. This new book starts with Dalio's template on the different types of deleveragings (beautiful, deflationary, and inflationary), the underlying mechanics of different policy responses, and how investors reacted. The second part includes in-depth, week-by-week case studies on the Weimar hyperinflation, the Great Depression, and the 2008 financial crisis. The final part is an auto-generated section on 48 different bubble case studies, which was a bit pedantic (you might as well read Kindleberger's "Manias, Panics, and Crashes").
April 26, 2020
Very thorough analysis on the debt crises happened from the several remarkable case studies, Weimar Germany , Great Depression, 2008 GFC
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