Ray Dalio on debt cycles
For Dalio, every act of borrowing pulls spending forward and so creates a cycle: short-term cycles are run by central banks, while human nature lets debts outgrow incomes over decades until a long-term debt peak and a deleveraging. Getting out takes a balance of austerity, defaults, redistribution and money printing, and his later warnings stress that over-indebted governments almost always end up printing, which devalues the currency.
16 points · 6 appearances · 2013–2026
How the view evolved
Printing money isn't inflationary if it offsets falling credit → The Fed must choose between higher rates and monetizing debt
In 2013 he argued that printing money to offset collapsing credit need not cause inflation. By 2021 he framed the Fed as stuck choosing between higher rates and monetizing debt, and said monetization inflates goods, services and financial assets.
Income growth must exceed the interest rate on debt → Facing default or printing, empires always choose printing
In 2013 printing was a tool to be balanced carefully, with Germany in the 1920s as the warning against overdoing it. By 2022 he said a heavily indebted empire always chooses to print, gradually and then massively, which devalues the currency.
Up next
2018–2026
“Almost the only way that you understand what truth is, is through experimentation, and so when you go out and experiment you're going to learn a lot more about what truth is. But the essence of what I'm saying is that when you take a look at that, use truth, that find out what the realities are as a foundation, do the independent thinking, do the experimentation to find out what's true, and change and keep going after that.”
2018–2026
“Investing is an exchange of a lump sum payment for a future cash flow, right? So it's maybe the cash you have or even the cash you can borrow, but you can take a certain amount of cash and you buy something and what you're getting is a cash flow.”
2021–2026 · changed view
“The times ahead will be radically different from those that we've experienced in our lifetimes, though similar to many times before. How do I know that? Because they always have been. Over my roughly 50 years of global macroeconomic investing, I've learned the hard way that the most important events that surprised me, did so because they never happened in my lifetime. These painful surprises led me to study the last 500 years of history for similar situations where I saw that they had indeed happened many times before with the ups and the downs of the Dutch, British, and US empires. And every time they did, it was a sign of the changing world order.”
2018–2019
“What do I mean by an idea meritocracy? I want to be very tangible for you. In order to have an idea meritocracy, in other words, the best ideas winning out, wherever those ideas come from, you have to do three things. The first is that you have to put your honest thoughts on the table, honest thoughts on the table, for everybody to see and then look at. One of the problems of most groups of people, most organizations, most individuals, is that they don't want to be honest, and they don't like disagreement. You can go out to a restaurant and somebody says, "I like the food," somebody is going to be reluctant to say, "I don't like the food." Thoughtful disagreement is the second thing. You have to understand the art of disagreement, because if there's disagreement, that means somebody is going to be wrong, and how do you know the wrong person isn't you? You have to understand the art of thoughtful disagreement. Then once you have that disagreement to raise your probabilities of making better decisions, and that certainly happens if you do it well, then you have to have ways that are going to, idea meritocratic ways, of getting past your disagreement. In other words, you have to have protocols, and we do something which we call believability weighting decision-making based on different people's credibilities. That's what I mean by an idea meritocracy.”