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Ray Dalio

@RayDalio

30 Dec 21

I saw how these struggles happened in timeless and universal ways, and how these struggles had huge implications for all aspects of people’s lives... (1/5)

... starting with what happened with taxes, the economy, and how people were with each other through periods of boom and bust and peace and war, and how they unfolded in cyclical ways, like the tide coming in and out. (2/5)

I saw that when these struggles took the form of healthy competition that encouraged human energy to be put into productive activities, they produced productive internal orders and prosperous times... (3/5)

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Ray Dalio

@RayDalio

28 Dec 21

In fact, it seems good rather than bad to most people because:
- It helps to relieve debt squeezes.
- It’s tough to identify any harmed parties that the wealth was taken away from to provide this financial wealth (though they are the holders of money and debt assets). (1/5)

- In most cases it causes assets to go up in the depreciating currency that people measure their wealth in, so it appears that people are getting richer. (2/5)

This is what has been happening during the coronavirus crisis as central governments and banks send out large amounts of money and credit. Note that you don’t hear anyone complaining about the money and credit creation... (3/5)

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Ray Dalio

@RayDalio

23 Dec 21

That is because printing a lot of currency and devaluing debt is the most expedient way of reducing or wiping out debt burdens. When debt burdens are sufficiently reduced or eliminated, the credit/ debt expansion cycles can begin again. (1/4)

As I explained comprehensively in my book Principles for Navigating Big Debt Crises, there are four levers that policy makers can pull to bring debt and debt-service levels down relative to the income and cash flow levels required to service debts: ... (2/4)

1. Austerity (spending less)
2. Debt defaults and restructurings
3. Transfers of money and credit from those who have more than they need to those who have less than they need (e.g., raising taxes)
4. Printing money and devaluing it (3/4)

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Ray Dalio

@RayDalio

22 Dec 21

On the contrary, we should expect most governments to abuse their privileged positions as the creators and users of money and credit for the same reasons that you might commit those abuses if you were in their shoes. (1/4)

That is because no one policy maker owns the whole cycle. (2/4)

Each comes in at one or another part of it and does what is in their interest to do given their circumstances at the time and what they believe is best (including breaking promises, even though the way they collectively handle the whole cycle is bad). (3/4)

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Ray Dalio

@RayDalio

21 Dec 21

Central banks want to stretch the money and credit cycle to make it last for as long as it can because that is so much better than the alternative. (1/4)

So when the system of hard money and claims on hard money becomes too painfully constrictive, governments typically abandon it in favor of what is called “fiat money.” (2/4)

No hard money is involved in fiat systems; there is just paper money that the central bank can print without restriction. As a result, there is no risk that the central bank will have its stash of hard money drawn down and have to default on its promises to deliver it. (3/4)

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Ray Dalio

@RayDalio

15 Dec 21

What I mean by that is that debts have to be paid above all else. For example, if you own a house (i.e., you have “equity” ownership) and you can’t make the mortgage payments, the house will be sold or taken away. (1/5)

In other words, the creditor will get paid ahead of the owner of the house. As a result, when your income is less than your expenses and your assets are less than your liabilities (i.e., debts), you are on the way to having to sell your assets. (2/5)

Unlike what most people intuitively think, there isn’t a fixed amount of money and credit in existence. Money and credit can easily be created by central banks. (3/5)

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