Ray Dalio: Money, Credit, Debt and Economic Activity

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Smith1776
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Ray Dalio: Money, Credit, Debt and Economic Activity

Post by Smith1776 » Tue Jun 30, 2020 7:46 am

This may have been posted somewhere on the forum previously. I can't get over how great this Ray Dalio essay is on the short and long-term debt cycles. In terms of how it relates to the PP, Dalio essentially argues that the reason why investors like the Knuckleheads don't value gold is because they see the economic machine and its cycles too up close. There's a natural inclination to project the recent past into the future indefinitely. However, the deeper you look into the past, the further you can see into the future. Rather than simply looking at 40 years of portfolio visualizer data, Dalio goes through centuries of global economic history. Gold becomes an absolute necessity in a portfolio as one realizes that these long-term debt cycles exist.

If one were to simply look at the investment world through a U.S.-centric lens with a particular focus on the past few decades, you'd naturally turn into a Knucklehead. If you're more prudent and look at deep history and global data, you'd naturally gravitate to more of a PP type of strategy.

https://www.linkedin.com/pulse/money-cr ... ray-dalio/

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Remember that there is always a limited amount of goods and services because the amount is constrained by the ability to produce. Also remember that in our example of paper money being claims on “hard money,” there is a limited amount of that “hard money” (e.g., the gold on deposit), while the amount of paper money (e.g., the claims on that hard money) and debt (the claims on that paper money) is constantly growing. And, as that amount of paper money claims grows relative to the amount of hard money in the bank and goods and services in the economy, the risk increases that the holders of those debt assets may not be able to redeem them for the amounts of hard money or goods and services that they expect to be able to exchange them for.
25% KILO.B | 60% VCIP | 15% VVL/VMO/VVO/VLQ | 90 Days of Expenses Bank Cash | 5% of Net Worth Physical Gold & Silver Bullion
Knucklehead (noun): Someone who knows the expense ratio of everything but the value of nothing.
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Hal
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Re: Ray Dalio: Money, Credit, Debt and Economic Activity

Post by Hal » Tue Jun 30, 2020 10:53 am

Quite liked that essay.

Another concept that caught my attention was that of "Freegold".
Wonder if following Dalio's history, we could go to a system where Gold is used for savings, but fiat is used for transactions ?

https://www.bullionstar.com/blogs/bulli ... -freegold/

https://www.youtube.com/watch?v=IKPRJKG9o4w
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technovelist
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Re: Ray Dalio: Money, Credit, Debt and Economic Activity

Post by technovelist » Wed Jul 01, 2020 3:53 pm

Hal wrote:
Tue Jun 30, 2020 10:53 am
Quite liked that essay.

Another concept that caught my attention was that of "Freegold".
Wonder if following Dalio's history, we could go to a system where Gold is used for savings, but fiat is used for transactions ?

https://www.bullionstar.com/blogs/bulli ... -freegold/

https://www.youtube.com/watch?v=IKPRJKG9o4w
The question is why anyone would want the fiat when they know that it can be reproduced indefinitely.
Of course I don't expect everyone to pay their bills with physical gold coins or bars because even the smallest practical coin is too big for many everyday purchases. However, verifiable claims ("tokens") representing any amount of gold, even a tiny amount, would work fine.
Another nod to the most beautiful equation: e + 1 = 0
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Smith1776
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Re: Ray Dalio: Money, Credit, Debt and Economic Activity

Post by Smith1776 » Wed Jul 01, 2020 4:20 pm

Another thought on how investors like the Knuckleheads just don't "get" gold.

I have noticed there's a very strong tendency for some investors to over-mathematize the investment process. In particular, the Knuckleheads forum literally doesn't allow the discussion of politics. By not allowing any kind of discourse regarding the government and its machinations, one would have a difficult time understanding the need for gold as per Dalio's paper. One would further likely end up using the quantitative hammer on every possible investment nail, not realizing other tools and forms of analysis being both available and important.
25% KILO.B | 60% VCIP | 15% VVL/VMO/VVO/VLQ | 90 Days of Expenses Bank Cash | 5% of Net Worth Physical Gold & Silver Bullion
Knucklehead (noun): Someone who knows the expense ratio of everything but the value of nothing.
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