How The Economic Machine Works by Ray Dalio

Borrowing pulls future spending into the present because you consume more today than you produce and commit to repaying later, creating waves of higher current spending followed by lower future spending that form cycles.

Credit amplifies economic activity because lending lets people spend beyond current income, and that extra spending becomes someone else's income, raising overall demand in a self-reinforcing loop.

A loan is both a lender's asset and a borrower's liability because the lender records a claim on future payments while the borrower records an obligation, and repaying principal cancels the asset and liability when the claim is settled.

Interest rates change borrowing because higher rates raise the cost of loans and debt service, discouraging new borrowing and reducing spending while lower rates make credit cheaper and stimulate borrowing and consumption.

Over decades debt often grows faster than income because repeated borrowing cycles and rising asset prices encourage continual credit expansion, so cumulative debt and future repayment obligations outpace income growth.

Printing money can replace lost credit-driven spending without necessarily causing inflation because a dollar of newly created money that finances spending has the same price effect as a dollar previously financed by credit, so it prevents deflation if it simply fills the spending gap.

Long-term living standards rise mainly from steady productivity gains because productivity increases output per worker over time, while credit causes short-term swings because it can be rapidly expanded or withdrawn, producing big shifts in spending.

Central banks fight inflation by raising interest rates because higher rates increase debt costs and cut households' and firms' ability to spend, which lowers demand and can push the economy into recession.