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Bridgewater, Westport CT., 2018, 417 pgs.,
tables, diagrams
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Reviewer comment
The main part of this extensive study of the causes and possible cures of
national 'debt crises' is 66 pages long, the remainder is the historical
examples included as annexes. He also describes his theory in a very
interesting video available on Youtube. Of course my effort here is limited to
a superficial sumary of his ideas. I urge the readers to study his entire book,
including the hundreds of pages devoted to detailed analysis of specific
debt-credit cycles.
I want to point out that to me the term 'cycles' is misleading. The author,
himself, notes that they are not actually cyclical - that is circular - but
rather waves, They are described as such in The
Great Wave, by David Fischer, although Fischer's 'waves' are much greater
in both amplitude and lifetime than those that concern Mr. Dalio.
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Introduction:
Mr. Dalio states that his objective in writing this book is to provide the
reader a perspective from an investor who managed to weather the financial
crisis of 2008 due to his previous development of his concept that there are
general features of major debt crises that can be seen by historical study of
many of these and then organizing the data into an 'archetype' a kind of
standard model of how they develop, progress through stages and gradually end.
His view is that by understanding the life of debt crises financial managers
and investors may not only be able to survive them but take measures to prevent
or mitigate them. He studies all aspects of financial history, which he sees as
a series of cycles of expanding and contracting credit/debt. He does this not
from an academic's or politician's perspective but from that of an active
investor who is risking his wealth in real markets. He focuses 'on the relative
values and flows that drive the movements of capital'. He states that he came
to realize that although his personal experience was gained from direct
participation in these cycles, that was an insufficient basis for analysis.
This lead him to engage in serious historical study and analysis of as many
credit/debt cycles - 'market movements' - as possible.
Particularly important is his expression: "in order to survive them (the
cycles) in the future drove me to try to understand the cause-effect
relationships behind them". As a student of history, understanding causes
and effects {results} is my main objective.
It is from his analysis of these detailed historical records and quantifying
the size and timeing of a host of variables that he has developed his
'templates' or 'models' of each and then generalized them into his
'archetypical business cycle, the archetypical big debt cycle, the archetypical
deflationary deleverging, the archetypical inflationary deleverging, etc."
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Part I: The Archetypical Big Debt Cycle
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How I Think about Credit and Debt
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The Phases of the Classic Deflationary Debt
Cycle
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Inflationary Depressions and Currency Crises
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The Phases of the Classic Inflationary Debt
Cycle
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The Spiral from a More Transitory
Inflationary Depression to Hyperinflation
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War Economies
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In Summary
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