Notes on "How The Economic Machine Works" by Ray Dalio

• The economy:
  • Productivity growth
  • Short-term debt cycle
    • Expansion
      • Spending increases and prices start rising (inflation)
    • Central bank rises interest rates
    • Borrowing becomes more expensive
    • Spending slows
    • Incomes drop
    • Deflation
    • Recession
    • Lower interest rates
  • Long-term debt cycle
    • Asset values sore
    • People feel wealthy
    • Rising incomes
    • Debt burdens increase and starts growing faster than income
    • Spending slows
    • Debt burdens become too big
    • Deleveraging
      • Cut spending
      • Asset prices drop
      • Stock market drops
    • Solution
      • Cut spending
      • Reduce debt
        • Debt restructuring
      • Redistribute wealth
        • Tax the wealthy
      • Print money
        • Inflationary
        • Buys financial assets and government bonds
        • Drives up asset prices
        • Avoid printing too much money
    • Balance inflationary and deflationary
• Transactions:
  • Every time you buy something
• Total amount of spending drives the economy
• Market: all the buyers and all the sellers
• Total spending / total quantity = the economy
• The biggest buyer is the government
• Central government: collects taxes and spends money
• Central bank: controls the amount of money and credit in the economy
  • Printing new money
  • Adjusting interest rates
• Credit: the biggest and most volatile part of the economy
  • Credit = Debt
  • Credit helps increase spending
  • Another person's spending is another person's income
• Because we borrow, we have cycles
  • Borrowing from your future self
• Income needs to grow faster than debt growth
• Don't have income rise faster than productivity
• Productivity is what matters most in the long-run