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How The Economic Machine Works by Ray Dalio
Principles by Ray Dalio

How The Economic Machine Works by Ray Dalio

16 insights saved from this video by @money
  1. @money
    Borrowing expands economic activity, but every credit-driven upswing eventually has to come down.
  2. @money
    A borrowed television creates repayment obligations without income. A borrowed tractor can raise output and income to repay debt.
  3. @money
    Most money people use is actually credit, so shrinking credit shrinks effective money and intensifies the scramble for liquidity.
  4. @money
    Austerity can worsen the debt burden first when spending cuts shrink incomes faster than debts are repaid.
  5. @money
    Deleveraging feeds itself: less spending means less income, less wealth, less credit, and still less borrowing.
  6. @money
    When wealth is concentrated and downturns drain government revenue, taxation tends to shift wealth from the wealthy to people with less.
  7. @money
    Borrowing pulls spending forward, allowing consumption above income now and forcing consumption below income later.
  8. @money
    Credit is the economy’s most important, largest, and most volatile component, yet it remains least understood.
  9. @money
    Three rules of thumb: debt must not outgrow income, income must not outgrow productivity, and productivity must be maximized.
  10. @money
    The long-term debt peak hit the United States, Europe, and much of the world in 2008.
  11. @money
    When spending and incomes grow faster than production, prices rise and inflation follows.
  12. @money
    When a recession becomes severe and inflation fades, lower interest rates revive borrowing and spending.
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