The economic machine is nothing more than a transaction, says Ray Dalio, Bridgewater Associates founder, president & CIO, providing insight on global economic trends. The U.S. is now in the middle of a short-term debt cycle, explains Ray Dalio.
Also see Ray Dalio 2010 Harvard Presentation
Ray Dalio video and transcript below
want to convey, i think we go so quickly to think what’s the economy going to do next year without agreeing on how the machine works, and the economy works like a machine, and the only reason i’m doing this interview and that video, how the economic machine works, is to draw attention to, how does it work? because if we can agree on how it works, so many other things come from that. we’ll talk about what i think is happening now, but within the context of that. the economic machine is nothing more than a transaction. a very simple thing. if i buy something from you, i can buy it for money or credit. and when i buy it for credit over a period of time, a credit is a promise to deliver money, so we begin a cycle. in that cycle, there are two cycles around income. at the end of the day, you can only spend what you earn, but that’s not truever the short run, because you can borrow money, so around that income growth is our debt cycles, and there’s a short-term debt cycle, which we call the business cycle, we’re used to, expansions, recessions, tightening, and recessionss again. i’d like to put where we are in the context of that. sorry for that background, but at least we can then look at the world that way. now where the u.s. is, because it could print money, print money means the purchase of financial assets. financial assets went up a lot and as a result of them going up a lot, future expected returns went down a lot, so the return of equities has gone down to probably about 4%, which is, by the way, in line with cash being about 1%, bonds being about 3%, return of equities about 4%. that liquidity has happened. we are now in the middle of the short-term debt cycle. in other words, you’re out of the recession and not into yet the tightening. those middle periods are kind of the boring years. they are the years like 2004 and ’06, you forget they even existed. what happened in 2004 and 2006? you don’t remember. 2007 and 2008 you remember. we’re in that period in the