Ray Dalio: Money, Credit, Debt and Economic Activity
Posted: 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/
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/
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.