Ray Dalio on the economic machine
Dalio sees the economy as a simple machine built from countless transactions, where one person's spending is another's income and credit is the biggest, most volatile and least understood part. Money settles a transaction while credit creates an obligation. Productivity drives living standards over the long run, while credit and debt drive the swings in the short run, so debt should not outgrow income and income should not outgrow productivity.
9 points · 2 appearances · 2013–2025
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2013–2026 · changed view
“But because we borrow, we have cycles. This isn't due to any laws or regulation, it's due to human nature and the way that credit works. Think of borrowing as simply a way of pulling spending forward. In order to buy something you can't afford, you need to spend more than you make. To do this, you essentially need to borrow from your future self. In doing so you create a time in the future that you need to spend less than you make in order to pay it back. It very quickly resembles a cycle. Basically, anytime you borrow you create a cycle. This is as true for an individual as it is for the economy. This is why understanding credit is so important because it sets into motion a mechanical, predictable series of events that will happen in the future.”
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.”