Watching this video narrated by Ray Dalio himself, I feel I agree with and understand his point of view completely. I especially appreciate how he explained the function of Central Bank and the Federal Reserve, the concept of credit, and the flaws of human nature, therefore the interference/management of the Federal Reserve together with the government to achieve “beautiful deleveraging’. While in the end, he aptly concluded the key to growth is credit creation, debt cycle but true productivity, which is engendered mainly by technology in my view.
What seems missing from merely watching his video, is how to apply this knowledge to the market, and guide our investment.
I refer to his book – A Template For Understanding Big Debt Crisis, in which, he cited three grand recessions occurred before world war II in Europe as well as in the U.S. and the recent financial crisis in 2007-2008 with concrete detail in support. Moreover, he also provided in the compendium 40 case studies with charts and numbers.
- German Debt Crisis and Hyperinflation (1918–1924)
- US Debt Crisis and Adjustment (1928–1937)
- US Debt Crisis and Adjustment (2007–2011)
His key point, I think, is that in a debt-stimulated economy that we live now, cyclical crises are inevitable, the role a government can play is to accomplish a “beautiful deleveraging”. By studying history, one can be better to understand the current state of our society and predict, manage situations more craftily.
In sum, the ability to make right judgment on macroeconomic level makes his success in creating the world’s largest hedge fund shop.