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Ray Dalio

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Bridgewater, Westport CT., 2018, 417 pgs., tables, diagrams


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.



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."


Part I: The Archetypical Big Debt Cycle


How I Think about Credit and Debt


The Phases of the Classic Deflationary Debt Cycle


Inflationary Depressions and Currency Crises


The Phases of the Classic Inflationary Debt Cycle


The Spiral from a More Transitory Inflationary Depression to Hyperinflation


War Economies


In Summary









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