United States debt

[pmward]

Does Dalio explain why the short debt cycles are X years long, and the long debt cycles are Y years long

If I recall correctly off hand I believe he just attributed it to natural human behavior. That we will borrow and spend as much as we can until we run off the cliff. And short credit cycles tend to usually be somewhere in the 5-10 year range before some small bumps on the road are hit, and typically once every 50-75 years (basically once an adult lifetime) we really overdo it and smash our face into a wall because we are bad at learning from the mistakes of past generations. It also varies on where you start. For instance, we had a pretty large deleveraging after 08/09 so our short term credit cycle is a bit longer than typical this round simply because we started from much lower than the typical short term cycle starts. He did say that the first short term cycle after the long term cycle ends can be particularly dangerous because interest rates are not high enough to be able to fight any major issues that could come up. The fed has very limited firepower as there's not much in the way of interest rates to cut, and since we have already done 3 rounds of QE we are already at the point of severely diminishing returns from additional QE. If in the next recession we hit 0% rates again and it's not enough to fully re-stimulate the economy then it could be a long, slow, hard grind back out as opposed to the quick recovery we had earlier in the decade when the fed had enough firepower and responded quickly and aggressively enough to pull us out of the deflation very quickly. His main worry is that we wind up back in a late 30's type environment. As an anecdotal side note, I think this is part of why the fed was so adamant about increasing rates last year, even though inflation was tame; they wanted more firepower just in case.

+1 that it's a great book, especially so since you can download the pdf free from the Bridgewater site.

[pmward]

Interestingly enough, Dalio just posted an article this morning discussing some of the things I mentioned. He seems to be quite a bit less worried now about recession in the U.S. since the Fed increased their firepower by raising rates last year, and has now turned dovish. He now thinks that any slowdown we may get should be "manageable". He does have a lot more concern globally, especially in the EU: https://seekingalpha.com/article/424657 ... ging?ifp=0

[Smith1776]

Just an add-on. From what I understand, part of the big difference between the long-term and short-term debt cycles (in addition to what has been mentioned), is that at the end of the long-term debt cycle interest rates can't be lowered any further because they're already pretty much at zero percent.

It seems that the long-term debt cycle is also characterized by massive debt to income ratios. More so than at the end of each short-term debt cycle.

What's really interesting to me is in the case studies Dalio does, how consistently well gold does relative to the local currency.