How The Economic Machine Works by Ray Dalio

How the economic machine works, in 30 minutes. The economy works like a simple machine. But many people don’t understand it — or they don’t agree on how it works — and this has led to a lot of needless economic suffering. I feel a deep sense of responsibility to share my simple but practical economic template. Though it’s unconventional, it has helped me to anticipate
and sidestep the global financial crisis, and has worked well for me for over 30 years. Let’s begin. Though the economy might seem complex,
it works in a simple, mechanical way. It’s made up of a few simple parts and a lot of simple transactions that are repeated over and over again a zillion times. These transactions are above all else driven by human nature, and they create 3 main forces that drive the economy. Number 1: Productivity growth Number 2: The Short term debt cycle and Number 3: The Long term debt cycle We’ll look at these three forces
and how laying them on top of each other creates a good template for tracking economic movements and figuring out what’s happening now. Let’s start with the simplest part of the economy: Transactions. An economy is simply the sum
of the transactions that make it up and a transaction is a very simple thing. You make transactions all the time. Every time you buy something
you create a transaction. Each transaction consists of a buyer exchanging money or credit with a seller for goods,
services or financial assets. Credit spends just like money, so adding together the money spent
and the amount of credit spent, you can know the total spending. The total amount of spending
drives the economy. If you divide the amount spent by the quantity sold, you get the price. And that’s it. That’s a transaction. It is the building block
of the economic machine. All cycles and all forces
in an economy are driven by transactions. So, if we can
understand transactions, we can understand
the whole economy. A market consists of all the buyers and all the sellers making transactions for the same thing. For example,
there is a wheat market, a car market, a stock market and markets
for millions of things. An economy consists
of all of the transactions in all of its markets. If you add up
the total spending and the total
quantity sold in all of the markets, you have everything
you need to know to understand the economy. It’s just that simple. People, businesses, banks and governments all engage in transactions
the way I just described: exchanging money and credit
for goods, services and financial assets. The biggest buyer and seller
is the government, which consists of two important parts: a Central Government
that collects taxes and spends money… …and a Central Bank, which is different from other buyers
and sellers because it controls the amount of money
and credit in the economy. It does this by influencing
interest rates and printing new money. For these reasons,
as we’ll see, the Central Bank is an
important player in the flow of Credit. I want you to
pay attention to credit. Credit is the most
important part of the economy, and probably the least understood. It is the most important part
because it is the biggest and most volatile part. Just like buyers and sellers
go to the market to make transactions, so do lenders and borrowers. Lenders usually want to
make their money into more money and borrowers usually want to
buy something they can’t afford, like a house or car or they want to invest in
something like starting a business. Credit can help both lenders and borrowers get what they want. Borrowers promise to
repay the amount they borrow, called the principal, plus an additional amount, called interest. When interest rates are high, there is less borrowing
because it’s expensive. When interest rates are low, borrowing increases
because it’s cheaper. When borrowers promise to repay and lenders believe them, credit is created. Any two people can agree
to create credit out of thin air! That seems simple enough
but credit is tricky because it has different names. As soon as credit is created, it immediately turns into debt. Debt is both an asset to the lender, and a liability to the borrower. In the future, when the borrower repays the loan,
plus interest, the asset and liability disappear and the transaction is settled. So, why is credit so important? Because when a borrower receives credit, he is able to increase his spending. And remember,
spending drives the economy. This is because one person’s spending is another person’s income. Think about it,
every dollar you spend, someone else earns. and every dollar you earn,
someone else has spent. So when you spend more,
someone else earns more. When someone’s income rises it makes lenders more willing
to lend him money because now he’s
more worthy of credit. A creditworthy borrower
has two things: the ability to repay and collateral. Having a lot of income in relation to his debt gives him the ability to repay. In the event that he can’t repay, he has valuable assets to use as collateral that can be sold. This makes lenders feel comfortable lending him money. So increased income allows increased borrowing which allows increased spending. And since one person’s spending is another person’s income, this leads to more increased borrowing and so on. This self-reinforcing pattern leads to economic growth and is why we have Cycles. In a transaction, you have to give something in order to get something and how much you get depends on how much
you produce over time we learned and that accumulated knowledge raises
are living standards we call this productivity growth those who were invented and hard-working raise their productivity and their living
standards faster than those who are complacent and lazy, but that isn’t necessarily true over the short run. Productivity matters most in the long run, but credit matters most in the short run. This is because productivity growth doesn’t fluctuate much, so it’s not a big driver of economic swings. Debt is — because it allows us to consume more than we produce when we acquire it and it forces us to consume less than we produce when we pay it back. Debt swings occur in two big cycles. One takes about 5 to 8 years and the other takes about 75 to 100 years. While most people feel the swings, they typically don’t see them as cycles because they see them too up close — day by day, week by week. In this chapter we are going to step back and look at these three big forces and how they interact to make up our experiences. As mentioned, swings around the line are not due to how much innovation or hard work there is, they’re primarily due to how much credit there is. Let’s for a second imagine an economy without credit. In this economy, the only way I can increase my spending is to increase my income, which requires me to be more productive and do more work. Increased productivity is the only way for growth. Since my spending is another person’s income, the economy grows every time I or anyone else is more productive. If we follow the transactions and play this out, we see a progression like the productivity growth line. But because we borrow, we have cycles. This isn’t due to any laws or regulation, it’s due to human nature and the way that credit works. Think of borrowing as simply a way of pulling spending forward. In order to buy something you can’t afford, you need to spend more than you make. To do this, you essentially need to borrow from your future self. In doing so you create a time in the future that you need to spend less than you make in order to pay it back. It very quickly resembles a cycle. Basically, anytime you borrow you create a cycle.? This is as true for an individual as it is for the economy. This is why understanding credit is so important because it sets into motion a mechanical, predictable series of events that will happen in the future. This makes credit different from money. Money is what you settle transactions with. When you buy a beer from a bartender with cash, the transaction is settled immediately. But when you buy a beer with credit, it’s like starting a bar tab. You’re saying you promise to pay in the future. Together you and the bartender create an asset and a liability. You just created credit. Out of thin air. It’s not until you pay the bar tab later that the asset and liability disappear, the debt goes away and the transaction is settled. The reality is that most of what people call money is actually credit. The total amount of credit in the United States is about $50 trillion and the total amount of money is only about $3 trillion. Remember, in an economy without credit: the only way to increase your spending is to produce more. But in an economy with credit, you can also increase your spending by borrowing. As a result, an economy with credit has more spending and allows incomes to rise faster than productivity over the short run, but not over the long run. Now, don’t get me wrong, credit isn’t necessarily something bad that just causes cycles. It’s bad when it finances over-consumption that can’t be paid back. However, it’s good when it efficiently allocates resources and produces income so you can pay back the debt. For example, if you borrow money to buy a big TV, it doesn’t generate income
for you to pay back the debt. But, if you borrow money
to buy a tractor — and that tractor let’s you harvest
more crops and earn more money — then, you can pay back your debt and improve your living standards. In an economy with credit, we can follow the transactions and see how credit creates growth. Let me give you an example: Suppose you earn $100,000 a year and have no debt. You are creditworthy enough to borrow $10,000 dollars – say on a credit card – so you can spend $110,000 dollars even though you only earn $100,000 dollars. Since your spending is another person’s income, someone is earning $110,000 dollars. The person earning $110,000 dollars with no debt can borrow $11,000 dollars, so he can spend $121,000 dollars even though he has only earned $110,000 dollars. His spending is another person’s income and by following the transactions we can begin to see how this process works in a self-reinforcing pattern. But remember, borrowing creates cycles and if the cycle goes up, it eventually needs to come down. This leads us into the Short Term Debt Cycle. As economic activity increases, we see an expansion – the first phase of the short term debt cycle. Spending continues to increase and prices start to rise. This happens because the increase in spending is fueled by credit – which can be created instantly out of thin air. When the amount of spending and incomes grow faster than the production of goods: prices rise. When prices rise, we call this inflation. The Central Bank doesn’t want too much inflation because it causes problems. Seeing prices rise, it raises interest rates. With higher interest rates, fewer people can afford to borrow money. And the cost of existing debts rises. Think about this as the monthly payments
on your credit card going up. Because people borrow less and have higher debt repayments, they have less money leftover to spend, so spending slows …and since one person’s spending is another person’s income, incomes drop…and so on and so forth. When people spend less, prices go down. We call this deflation. Economic activity decreases and we have a recession. If the recession becomes too severe and inflation is no longer a problem, the central bank will lower interest rates to cause everything to pick up again. With low interest rates, debt repayments are reduced and borrowing and spending pick up and we see another expansion. As you can see, the economy works like a machine. In the short term debt cycle,
spending is constrained only by the willingness of lenders and borrowers to provide and receive credit. When credit is easily available,
there’s an economic expansion. When credit isn’t easily available,
there’s a recession. And note that this cycle is controlled primarily by the central bank. The short term debt cycle typically lasts 5 – 8 years and happens over and over again for decades. But notice that the bottom and top of each cycle finish with more growth than the previous cycle and with more debt. Why? Because people push it — they have an inclination to borrow
and spend more instead of paying back debt. It’s human nature. Because of this, over long periods of time, debts rise faster than incomes creating the Long Term Debt Cycle. Despite people becoming more indebted, lenders even more freely extend credit. Why? Because everybody thinks things are going great! People are just focusing on what’s been happening lately. And what has been happening lately? Incomes have been rising! Asset values are going up! The stock market roars! It’s a boom! It pays to buy goods, services, and financial assets with borrowed money! When people do a lot of that, we call it a bubble. So even though debts have been growing, incomes have been growing nearly as fast to offset them. Let’s call the ratio of debt-to-income the debt burden. So long as incomes continue to rise, the debt burden stays manageable. At the same time asset values soar. People borrow huge amounts of money to buy assets as investments causing their prices to rise even higher. People feel wealthy. So even with the accumulation of lots of debt, rising incomes and asset values
help borrowers remain creditworthy for a long time. But this obviously can not continue forever. And it doesn’t. Over decades, debt burdens slowly increase
creating larger and larger debt repayments. At some point, debt repayments start growing faster than incomes forcing people to cut back on their spending. And since one person’s spending is another person’s income, incomes begin to go down… …which makes people less creditworthy
causing borrowing to go down. Debt repayments continue to rise which makes spending drop even further… …and the cycle reverses itself. This is the long term debt peak. Debt burdens have simply become too big. For the United States, Europe and much of the rest of the world this happened in 2008. It happened for the same reason it happened in Japan in 1989 and in the United States back in 1929. Now the economy begins Deleveraging. In a deleveraging; people cut spending, incomes fall, credit disappears, assets prices drop, banks get squeezed, the stock market crashes, social tensions rise and the whole thing starts to feed on itself the other way. As incomes fall and debt repayments rise, borrowers get squeezed.
No longer creditworthy, credit dries up and borrowers can no longer borrow
enough money to make their debt repayments. Scrambling to fill this hole, borrowers are forced to sell assets. The rush to sell assets floods the market This is when the stock market collapses, the real estate market tanks and banks get into trouble. As asset prices drop, the value of the collateral borrowers can put up drops. This makes borrowers even less creditworthy. People feel poor. Credit rapidly disappears.
Less spending › less income › less wealth › less credit › less borrowing and so on. It’s a vicious cycle. This appears similar to a recession but the difference here is that interest rates can’t be lowered to save the day. In a recession, lowering interest rates works to stimulate the borrowing. However, in a deleveraging, lowering interest rates doesn’t work because interest rates are already low and soon hit 0% – so the stimulation ends. Interest rates in the United States hit 0% during the deleveraging of the 1930s and again in 2008. The difference between a recession and a deleveraging is that in a deleveraging borrowers’ debt burdens have simply gotten too big and can’t be relieved by lowering interest rates. Lenders realize that debts have become too large to ever be fully paid back. Borrowers have lost their ability to repay and their collateral has lost value. They feel crippled by the debt – they don’t even want more! Lenders stop lending.
Borrowers stop borrowing. Think of the economy as being not-creditworthy, just like an individual. So what do you do about a deleveraging? The problem is debt burdens are too high and they must come down. There are four ways this can happen. 1. people, businesses, and governments cut their spending. 2. debts are reduced through defaults and restructurings. 3. wealth is redistributed from the ‘haves’ to the ‘have nots’. and finally, 4. the central bank prints new money. These 4 ways have happened in every deleveraging in modern history. Usually, spending is cut first. As we just saw, people, businesses, banks and even governments tighten their belts and cut their spending so that they can pay down their debt. This is often referred to as austerity. When borrowers stop taking on new debts, and start paying down old debts, you might expect the debt burden to decrease. But the opposite happens!
Because spending is cut – and one man’s spending is another man’s income – it causes incomes to fall.
They fall faster than debts are repaid and the debt burden actually gets worse.
As we’ve seen, this cut in spending is deflationary and painful. Businesses are forced to cut costs… which means less jobs and higher unemployment. This leads to the next step: debts must be reduced! Many borrowers find themselves unable to repay their loans — and a borrower’s debts are a lender’s assets. When borrowers don’t repay the bank,
people get nervous that the bank won’t be able to repay them so they rush to withdraw their money from the bank.
Banks get squeezed and people, businesses and banks default on their debts.
This severe economic contraction is a depression. A big part of a depression is people discovering much of what they thought was their wealth isn’t really there. Let’s go back to the bar. When you bought a beer and put it on a bar tab, you promised to repay the bartender.
Your promise became an asset of the bartender. But if you break your promise
– if you don’t pay him back and essentially default on your bar tab – then the ‘asset’ he has isn’t really worth anything. It has basically disappeared. Many lenders don’t want their assets to disappear and agree to debt restructuring. Debt restructuring means lenders get paid back less or get paid back over a longer time frame or at a lower interest rate that was first agreed.
Somehow a contract is broken in a way that reduces debt.
Lenders would rather have a little of something than all of nothing. Even though debt disappears, debt restructuring causes income and asset values to disappear
faster, so the debt burden continues to gets worse. Like cutting spending, debt reduction is also painful and deflationary. All of this impacts the central government because lower incomes and less employment means the government collects fewer taxes. At the same time it needs to increase its spending because unemployment has risen. Many of the unemployed have inadequate savings and need financial support from the government. Additionally, governments create stimulus plans and increase their spending to make up for the decrease in the economy. Governments’ budget deficits explode in a deleveraging because they spend more than they earn in taxes. This is what is happening when you hear about the budget deficit on the news. To fund their deficits, governments need to either raise taxes or borrow money.
But with incomes falling and so many unemployed, who is the money going to come from?
The rich. Since governments need more money and since wealth is heavily concentrated in the hands of a small percentage of the people, governments naturally raise taxes on the wealthy which facilitates a redistribution of wealth in the economy – from the ‘haves’ to the ‘have nots’.
The ‘have-nots,’ who are suffering, begin to resent the wealthy ‘haves.’ The wealthy ‘haves,’ being squeezed by the weak economy, falling asset prices, higher taxes, begin to resent the ‘have nots.’ If the depression continues social disorder can break out. Not only do tensions rise within countries, they can rise between countries – especially debtor and creditor countries. This situation can lead to political change that can sometimes be extreme. In the 1930s, this led to Hitler coming to power, war in Europe, and depression in the United States. Pressure to do something to end the depression increases. Remember, most of what people thought was money was actually credit. So, when credit disappears, people don’t have enough money. People are desperate for money and you remember who can print money? The Central Bank can. Having already lowered its interest rates to nearly 0 – it’s forced to print money. Unlike cutting spending, debt reduction, and wealth redistribution, printing money is inflationary and stimulative. Inevitably, the central bank prints new money — out of thin air — and uses it to buy financial assets and government bonds. It happened in the United States during the Great Depression and again in 2008, when the United States’ central bank — the Federal Reserve — printed over two trillion dollars. Other central banks around the world that could,
printed a lot of money, too. By buying financial assets with this money, it helps drive up asset prices which makes people more creditworthy. However, this only helps those who own financial assets. You see, the central bank can print money but it can only buy financial assets. The Central Government, on the other hand, can buy goods and services and put money in the hands of the people but it can’t print money. So, in order to stimulate the economy, the two must cooperate. By buying government bonds, the Central Bank essentially lends money to the government, allowing it to run a deficit and increase spending on goods and services through its stimulus programs and unemployment benefits. This increases people’s income as well as the government’s debt. However, it will lower the economy’s total debt burden. This is a very risky time. Policy makers need to balance the four ways that debt burdens come down. The deflationary ways need to balance with the inflationary ways in order to maintain stability. If balanced correctly, there can be a Beautiful Deleveraging. You see, a deleveraging can be ugly or it can be beautiful. How can a deleveraging be beautiful? Even though a deleveraging is a difficult situation, handling a difficult situation in the best possible way is beautiful. A lot more beautiful than the debt-fueled, unbalanced excesses of the leveraging phase.
In a beautiful deleveraging, debts decline relative to income, real economic growth is positive, and inflation isn’t a problem.
It is achieved by having the right balance. The right balance requires a certain mix of cutting spending, reducing debt, transferring wealth and printing money so that economic and social stability can be maintained. People ask if printing money will raise inflation. It won’t if it offsets falling credit.
Remember, spending is what matters. A dollar of spending paid for with money has the same effect on price as a dollar of spending paid for with credit. By printing money, the Central Bank can make up for the disappearance of credit with an increase in the amount of money. In order to turn things around, the Central Bank needs to not only pump up income growth but get the rate of income growth higher than the rate of interest on the accumulated debt. So, what do I mean by that? Basically, income needs to grow faster than debt grows. For example: let’s assume that a country going through a deleveraging has a debt-to- income ratio of 100%. That means that the amount of debt it has is the same as the amount of income the entire country makes in a year. Now think about the interest rate on that debt, let’s say it is 2%. If debt is growing at 2% because of that interest rate and income is only growing at around only 1%, you will never reduce the debt burden. You need to print enough money to get the rate of income growth above the rate of interest. However, printing money can easily be abused because it’s so easy to do and people prefer it to the alternatives. The key is to avoid printing too much money and causing unacceptably high inflation, the way Germany did during its deleveraging in the 1920’s. If policymakers achieve the right balance, a deleveraging isn’t so dramatic. Growth is slow but debt burdens go down. That’s a beautiful deleveraging. When incomes begin to rise, borrowers begin to appear more creditworthy. And when borrowers appear more creditworthy, lenders begin to lend money again.
Debt burdens finally begin to fall. Able to borrow money, people can spend more. Eventually, the economy begins to grow again, leading to the reflation phase of the long term debt cycle. Though the deleveraging process can be horrible if handled badly, if handled well, it will eventually fix the problem. It takes roughly a decade or more for debt burdens to fall and economic activity to get back to normal – hence the term ‘lost decade.’ Of course, the economy is a little more complicated than this template suggests. However, laying the short term debt cycle on top of the long term debt cycle and then laying both of them on top of the productivity growth line gives a reasonably good template for seeing where we’ve been, where we are now and where we are probably headed. So in summary, there are three rules of thumb that I’d like you to take away from this: First:
Don’t have debt rise faster than income, because your debt burdens will eventually crush you. Second:
Don’t have income rise faster than productivity, because you will eventually become uncompetitive. And third:
Do all that you can to raise your productivity, because, in the long run, that’s what matters most. This is simple advice for you and it’s simple advice for policy makers. You might be surprised but most people — including most policy makers — don’t pay enough attention to this. This template has worked for me and I hope that it’ll work for you. Thank you.

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100 Responses

  1. Rafael Santos says:


  2. j Money says:

    So in other words buy gold in silver, I can read between the lines.

  3. WasabiNinja says:

    There is no money. UNITED STATES has been broke since June 5th 1933 under House Joint Resolution 192, Public law 73-10. There is only Credit/Debt.

  4. Robert Bohrer says:

    Great summary!

  5. Joey Chai says:

    Why Germans using M1?

  6. Keith Levene says:

    Any examples of "a beautiful deleveraging?"

  7. BigHenFor says:

    If the economy was a machine, it was built in Scrapheap Challenge.

  8. Chuck Bell says:

    This video never mentions the role saving plays. Only the role spending plays. The public is indoctrinated to borrow and produce and spend rather than save. This makes people only think of the short term and rather than save any portion of their earnings for future investment they are encouraged to spend it all on cheap plastic shit. People need to discipline themselves to not spend every cent they make faster than they can earn it and restrain borrowing more than they can afford. Keynes was one stupid economist and a pedophile to boot. This Keynesian system is how slaves are kept slaves and the FED and the state need to keep their fingers out of the economy and let the supply and demand forces of a free market work according to natural laws instead of trying to control the economy by "managing" it and printing fiat money out of thin air. We need to End the FED. See the video James Corbett produced called "Century of Enslavement: The History of the Federal Reserve":

  9. Jamie Toscanp says:

    Obviously this isn't going to work out well. Have not'$ is coached by the have all's $$$$$$$$ …. Why? Because stepping on people is what is actually happening. Sad stuff

  10. Rick Park says:

    What a great video. I am saving it as a reference to save me from re-explaining this over and over to people who just don't get why getting out of balance on spending, at any level, is a bad thing. Thanks for sharing it.

  11. Fabrice Manzo says:

    Do you already understand how Bitcoin works under the hood? or do you still think it's a speculative bubble?

  12. Edric Wijaya says:

    Holy shit, this is worth 4 years to achieve economic degree in University.

  13. W Serba says:

    I stopped watching after 2:50 seconds to write the following. This is some naive bullshit. I used to work at a business that sold a luxury item that rolls on four wheels. Those "things" needed parts to fix them. I walked into a room in the back of the business and saw a guy modifying a spreadsheet to increase the cost of parts needed to fix the "things" by 100-1000%. Something like a screw went from 10 cents per screw to a dollar per screw. The thing is… there's no itemized cost sheet for the customer to look at. The customer just sees the whole bill, and has no means to argue over how the business did what it did, or what it's charging per item. The customer service rep by being completely ignorant of what the guy in the back was doing to jack up prices by an absurd amount was able to look the customer in the eye and say, "That's how much it cost," and do it without the appearance of lying. Sheer unadulterated greed is what makes businesses successful, caveat emptor. Business owners can do a great deal to screw over customers without them even realizing it. There are systems in place to keep people in the dark as to what's actually going on behind the markup curtain.

    The banking industry is a racket, and recently got legislation passed to make themselves above the law. I'm sorry Obama didn't let the system fail, like real capitalism requires it to do, instead the American taxpayer essentially became enslaved by the debt created by those at the top. If the system had been allowed to fail, all these shitheads who were in power before 2008 would have been removed, and the country could have healed itself. Instead the very shitheads who caused the collapse are still in power and still running everything into the ground.

    How long until our unpayable debt causes everything to collapse? 2030? Go go gadget American Empire

  14. James Scaur says:


    Takeaway: avoid debt that doesn't make you money, and focus on increasing productivity

  15. WillN2Go1 says:

    Pretty good, but some large gaps and a few problems. How does taxing the wealthy make poorer people resent them leading to unrest? The implication is that if the wealthy never paid any taxes and the poor got nothing, there would be no unrest. Tell that to Wat Tyler.

    Also the creation of money seems almost completely negative, something that is only done in recessions and depressions. One very real way money is 'created out of thin air,' is when people apply for and are granted mortgages. The bank who determines they are a good risk pays the Fed 1.5% of the value of the mortgage as a fee, the Fed then 'creates the value of the mortgage out of thin air.' The mortgage holder then over 20-30 years pays back the mortgage along with interest. When the mortgage is paid off all that money becomes 'real'. This is why extending credit is good, but handing out credit willy-nilly to people who won't be able to pay it back: 2008, is not good. What inventing money like this does is it allows people to become home owners before they have all the money. This in turn means builders can make more houses sooner than they would be able to otherwise.

    Where videos like this are useful is that all those little stick figures in the video represent real people, what would happen if 1/4 of those stick figures appeared but didn't fully participate in the exchanges? All of it would slow down. This is why poor people should not be ignored or judged. At some level a guaranteed income for all people including the undocumented are in the end good for the economy. Everyone moaning about immigrants is simply incredibly ignorant. Once your economy is working, more people = more money.

  16. Savage Hornpoke says:

    There is no balance. It is a myth that this system will ever work. It is still all smoke an mirrors, and the real economy is much more sophisticated and unmanageable. in the real world, we introduce the human element, and every system then experiences entropy due to gaming the system for selfishness.

  17. John Bartleson says:

    Basically…..We are ALL Debt Slaves!!!

  18. Knuckles says:

    US economy is hot air

  19. Alan B says:

    Dalio describes how the Fed drives a car with incredibly bad steering. Instead of keeping the value of money constant, as the Founders intended and driving in one direction down the road, the Fed constantly overcompensates and defers the pain to tomorrow, when, once again it will defer it to tomorrow. It's always the wrong time to let uneconomically viable things die, the wrong time for their friends. So they keep bailing them out, costing the rest of the economy billions of dollars every year.

  20. Huxley Platypus says:

    Your "beautiful deleveraging" entails untold human suffering.

  21. D. F. says:

    Thanks Mr. Dalio

  22. Richard Heldmann says:

    Too bad Ray didn't explain the difference between money and currency.

  23. richard levari says:

    Thanks for backing up what I already thought I knew about economics but sometime think I’m wrong when I look at how some people act when times are good. Rules must be followed least we find ourselves broke!

  24. Trip Ney says:

    English being my second language i really got a lot from this because it is simple yet on point Thank you very much for this very powerfull information for i am sure a lot more people like me and even for those with not soo good english understanding. Keep up the good work!

  25. RedPillMale says:

    Corporations and governments are so highly leveraged today that we're all fucked. Another simple concept.

  26. Chewie 13 says:

    Aug 6, 2019. Where are we now this this cycle. More debt or more income?

  27. Infidel Heretic says:

    Politicians spending borrowed money is a tactic to retain their power. It’s always better to run up the bill because it’s the next guys problem to figure out way to pay it or kick the can down the road.

  28. Jonson Sigamala says:

    The best presentation that I have ever seen on any topic so far! kudos!!!
    By the way your intonation is top-notch

  29. quantra Gaming says:

    Pro tip:- watch this video 10 times probably every week You'll get more in your head

  30. Sibran Putra says:


  31. Lady Tate says:

    but one must remember that money is primely but a unit of convenience in transactions made. its value is determined by the market. and that is precisely all it is. our work, resources, trade, communications and even our quality of thought, determines everything else. and it is all negotiable according to circumstances everywhere. it actually comes down to that and only that. credit is managed as is money due to the inherent limitations in the availability of resources (that includes natural resources, commodities, human resources, such as labor & skills, and government services). of course, 'human nature' plays a large hand in these economic processes. and transparency is a big plus in this regard. ; )

  32. George Cy says:

    2:58 goods, services and financial assets… taxes?

  33. Graham Dougherty says:

    I think the USA went in the wrong direction. LMAO

  34. Jordi van der Bok says:

    So where at the cycle are we this moment?..

  35. kiril K says:

    Nice theory and explanation, but has the US internal debt ever decreased since the 2007 crisis?

  36. Julia Lerner says:

    So what is the likely outcome of the rapidly rising US Federal Deficit?

  37. James Holder says:

    Borrowing needs more explanation. While you pay back the loan you have less money to spend and the economy slows down as a result. This guy ONLY talks about spending what you borrow as helping the economy. He forgets the other half of the deal.

  38. Swordguy's Channel says:

    Great video, far more useful than what is taught in schools. Although, the timeline was a bit off because the 2008 great recession for the US was just the start, and the next great depression in at the door. I guess you can't really put that in the video though, people would piss and crap their pants in a panic.

  39. Chon Seong Mah says:

    You are awesome!

  40. JustinSeizure says:

    Soooooo, credit is a net negative? Or humans are just stupid?

  41. SilentProductionsInc says:

    HELP… I cant find another similar video about the economy. but it was more animated, not 2D like this one. It was also about the same length. 30-40min.

  42. Andreas V says:

    Actually 0% isn't the limit. Sweden lowered the interest rate to negative.

  43. Andreas V says:

    A question. Why can't the central bank give the printed money to the government instead of lending it if the central bank is public?

  44. well being says:

    When you're biologically poor…you'll always be in debt.😣

  45. uk7769 says:

    Two things: one is August 2019 we are here: 14:36 'and number two is… LOOK OUT MAN! It's (economic) kuh-rah-tay Dang Elvis, did you have to get so riled up, bloated, and fat with massive DEBT.'

  46. Debra Legorreta says:

    Huge mistake to include "financial assets" in the definition of "transactions." Financial assets do nothing to the economy until the underlying obligation is paid in the form of a debt payment or a dividend. But for these flows, trading financial assets does nothing to affect the sum total of goods and services. Yet, by including them in the definition, they taint the very notion of productivity. Lame. No wonder we're in the mess we're in.

  47. Michael Taylor says:

    In the US, at least, the central bank is not part of the government.

  48. Ryaken says:

    Why am I wasting money on college?

  49. Dick Stephenson says:

    Governments cut spending? What planet do you live on?

  50. Roberto Garcia says:

    Are there books you recommended me? 🤔 To understand this better? 🤔

  51. Timothy Casey says:

    Love this!

  52. Amit Singh says:

    Beautifully explained video <3

  53. Joris Vander Cammen says:

    Comparing a complex human interaction pattern a machine is the first red flag.

    Economics are a soft science and all this video does is explain one economic model which allows for central control of the economy.

    Gee, I wonder who might benefit from this model?

    Could it be the private banks who own the central bank (federal reserve in the USA)?

    The economy is 100% dependent on the cooperation of the work force, the people, that means you and me, us.

    So there you have the reason why video's like this are produced: to keep the masses compliant.

  54. YoBro says:

    How economy doesn't work: Land collecting. If I own all the land, I rent out areas for as much profit as possible, so tenants don't have spending money. I invest in corporations, they grow big and produce. Nobody has money, nobody buys, Corporations go out of business. No one can afford rent. I go broke. Nobody has money. That's how economy doesn't work. Rent is waste. Rent is a parasite on economy. Property tax is rent, too. No rent = economy.

  55. Doug Evans says:

    Ray doesn't even understand what money is, credit and currency AREN'T money. Also, when has a "beautiful" deleveraging ever occurred?

  56. Doug Evans says:

    The sad thing is that Ray can only see an economy where "reflation" is the default, at some point this leads to the destruction of the currency. Ray, the normal course for a true free market is to make goods and services cheaper and the currency subsequently stronger, which would be deflationary. It isn't normal or good for a central bank to constantly destroy the wealth of an economy by inflating it away through a series of booms and busts.

  57. Ron B says:

    I thought the speaker is angry and he sounded intimidating. But very informative and educational.

  58. Jon Nofziger says:

    I'd like a refund on my MBA – could have just watched this!

  59. Mayank Singh says:

    I'm I the only of one who's not getting along 😢

  60. Lawrence Carson says:

    Thank You. Seems to me understanding this should be a minimum criteria for any politician to qualify as a candidate. So why isn't it?

  61. Marc Duchamp says:

    Most of the credits are created by the banks and central banks out of thin air while we toil hard all of our lives for these issuances like hungry wolves

  62. Bane says:

    Who's fault is stagnant wages in the last 40 years ? So central banks have the absolute power over everybody !

  63. Ratherfly247 says:

    -Create money out of thin air
    -Charge sovereign states for it at interest
    -Not 1 in 100 of the population pick up on the scam.
    Central bankers -genius!

  64. Lindsey Xiao says:

    super clear explanation

  65. Mallik Katthera says:

    Thank you so much for sharing this video sir . There is one question, I want to understand , how does savings of an individual play into this model , as in this model it is assumed an individual spends everything that the person earns and then takes credit over it . Please help us understand the saving variable . Thank you !

  66. ninabeach1 says:

    This is the most straightforward explanation ever about the economy, I dont know why we go to school.

  67. David Chorak says:

    Past 75 to 100 year cycles is no guarantee of future 76 too 100 years cycles. Same with 7 year cycles. Robotics, AI, massive increases of energy, high tech, social interconnectedness, recycling, and knew knowledge and 3rd world growth, interest rates going to zero and below is having disruptive and unforeseeable results on economics. Economics evolved. Old traders never die they just lose their Edge.
    But you had Your day Ray.

  68. David Chorak says:

    You’re supporting and cheering for your short positions in the markets. You’ll get squeezed out like a blackhead. Good luck.
    Look at all these zombies that are thanking you as you manipulate their insecurities for your benefit. You’re not building your house in heaven son. Good much again.

  69. tellucas says:

    It is not possible for income to rise faster than debt since you must first create the debt in order to have the money to spend into someone else’s income unless you run a trade surplus.

  70. Rick Noel says:

    Why borrow when you can print. Why charge taxes when you're already charging interest. WHY DENY BENEFITS. WHEN YOUR ALREADY CHARGING FOR THEM. ON AND ON .

  71. Muhammed Asif Iqbal says:

    Great information about economy cycle thank you sir

  72. bagariddum says:

    14:55 "incomes have been rising" What? Certainly not for the vast majority of citizens they haven't, not in REAL TERMS and not since the mid 1970s ! ALL of the extra income resulting from the productivity gains we have all made, since that time has been gifted to shareholders. Which is why we see 16:49 working people having to turn increasingly to credit/debt (after mid 1970s) just to maintain same standard of living. See also: more evidence of the great wages rip off:

  73. Oscar Rivero Thenías says:

    This video is really great.

  74. Daisy Dd says:

    23:21 im not sure if the government has increased taxes on the rich in the 2008 financial crisis. In today's world the top 1% of the population owns 50% of the world's wealth, and the top 10% owns 85% of the world's wealth. 23:50 china = creditor. US = debtor. hence china-US trade war 28:00 since 2008 we havent seen income growth, our real wage now is lower than 10 years ago

  75. perf b says:

    Ray Dalio and Bill Gross always struck me as a little fishy, their weak education backgrounds and weird company culture and Transcendental Meditation cultism, yet the financial media uncritically fawns over them when the reality could be just another Madoff story.

  76. Amarnath P says:

    A short video to explain the economy cycle! Thanks, Mr. Ray Dalio.

  77. priv1leged says:

    central banks are the mafia controlling the naive society

  78. arjun says:

    Make it in 2x speed.
    Get a 15 minutes to enjoy the nature

  79. sulimanh90 says:


    that is the question…

    Amazing explanation!

  80. DoYouThinkForUrselF says:

    Ray says buy GOLD now

  81. Al Darfco says:

    Very good explanation on how to lose your nation to a secret private group and totally corrupt your government.

  82. Herr Starr says:

    I know minimal stuff about economy but, is this keynesianism? I would like to see a similar video like this bit about the austrian school if somebody knows

  83. sajeev g says:


  84. TheViperZed says:

    great video, good explanation of a balanced economy, with financial institutions not being entities that remove large amounts of income from the economy in ways that are not borrowers repaying their loans. But what if that's not the case? What if financial institutions do create income sinkholes, and then do not bring these assets back into the economy?

  85. munsterr777 says:

    This is the education we NEED to make good decisions on finance and the economy

  86. Ken Jo says:

    Ah. The old elitist idea that poor people are only poor because they are complacent and lazy. How many Americans are there working two jobs just make ends meet? Maybe they need a third, because they're being too lazy. Who needs sleep anyway?

  87. What Hmm22 says:


  88. montanaro211 says:

    Best video I’ve ever seen. 3rd year Econ student

  89. Steve Will says:

    This guy is a fucking liar

  90. jenny wong says:

    Exactly like china now

  91. Marc San Luis says:

    This is amazing. Thank you, Ray!

  92. v j says:


  93. LR Options says:

    Full of great information, things that can be put to practice daily in our lives.

  94. SteelVIne says:

    Very informative!!

  95. HandyMan Extrodinaire says:

    BS. The only way to be lazy and get rich is to be a bank! Otherwise you experience mood and financial swings making you drink! So you produce more puke!
    Of course you can become a good lier and become a politician where you sell lies, bank on their trust and blame others for their failures. So as along as you are seen as sympathetic to their suffering, you can stay in office and get paid for being lazy, telling lies and blaming others. Then you can start a non-profit that will pay you to be a board member as well as for being the Charity Chief Executor. So you write a few books blaming more people and retire with government benefits, book proceedes & savings as well as becoming a news consultant and celebrity for which TV Shows can pay you to just show your face on their show. Also Schools, Businesses and Charities will pay you to speak at their events. So how can all this actually be explained by this video? And why is the money that goes into the central bank and pockets of investors that pay cash for everything ? Of course Insurance can help with crisis issues but Lawyers have to typically syphon money out of the economy so they can pay for stuff with cash as they vacation with the insurance agents and doctors! Go figure!

  96. Francisco Luis Noguera says:

    centrals banks have to disapear

  97. Francisco Luis Noguera says:

    This is some democrat socialist shi

  98. Helmut Goebbels says:

    Amazing how he's managed to talk about money for half an hour and not use the word 'Jewish' once.

  99. James Serra says:


  100. Jewel Grier says:

    Step on the little people..dont pay taxes flip houses ..dont

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