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Big Debt Crises eBook Ray Dalio

Download As PDF : Big Debt Crises eBook Ray Dalio

Big Debt Crises eBook Ray Dalio

Since 2008 financial "almost" meltdown, I have been more puzzled by the financial market and human behavior when it comes to money. Now in 2018, housing and stock prices at an all-time high while most people are not making more income than they did pre-2008. I also wondered what contributed to the run-up in US financial market vs. other countries. I'm 100 pages into the book and it has already offered me so many perspectives to view what is going on today.

Many looks at the Wall Street as an evil entity, but I believe the financial market can be utilized to create financial freedom for individuals. But first, we must make an effort to understand the game as Warren Buffett said - "Risk comes from not knowing what you're doing."

This is a must-read to understand the world we live in today. I'm grateful that Ray and his team had put a very complex world of finance into simple languages I can understand and offer a comprehensive review of how we got here today.


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Big Debt Crises eBook Ray Dalio Reviews

Ray is a genius. He understands more about economics than Keynes, Friedman, Mises, et al. combined. After reading just about everything Ray has ever written, I can say that I really truly understand our economy. One question though regarding debt cycles. Our current debt/GDP ratio today is more or less the same level as it was in 2008, which means that despite this high debt burden, our economy can still grow briskly. The point is that I don't think the Great Recession was caused by too much debt as compared to GDP (because again, we're at the same ratio and our economy is fine), but the GR was caused by the economy having way too much short term/callable/repo debt as compared to M1. M1 is what's used to pay down short term debt when required. But over the course of the past 50 years, short term debt grew much faster than M1, so that when Bear and then Lehman fell, we had a huge liquidity crisis - more so than a debt crisis. Since 2008, the ratio of short term debt to M1 has improved dramatically. Ray, would you agree that the problem was less a high debt/GDP ratio than it was a high short term debt/M1 ratio?
This is hands down the best economics book I have ever read. The writing is very clear, unlike other economics books (I'm looking at you Piketty). It's also quite terrifying. This book has convinced me that the best thing I can do right now, regardless of whether we will have a collapse or not, is put my money in physical assets (especially real estate). Sure, they don't grow as fast, but it removes the risk of going broke if the dollar goes belly up.

Furthermore, as opposed to other doom-and-gloom recent writings, this book is not selling anything. It is simply presenting facts. It's up to you to draw your own conclusions as far as what you should do to protect yourself in the event of a crisis. My takeaway was that the only way to truly insulate yourself is to buy tangible assets. Myself, I will opt for putting most of my money in property, instead of gold or other such assets. The reason is simple. Everyone needs a place to live. Gold is not going to help me feed my family, but a house will help me shelter them in case of bad times. In case of good times, it will generate income.

The only criticism I have is that Dalio is a little bit too enamored with the Fed (and central banking in general). I agree that they did an excellent job to avert a depression. However, bailing out banks set a dangerous precedent, because as long as there is the widely held belief that the government will always be there to absorb bad debt, these people will keep doing it. Yes, the Fed saved the economy, but in reality, they just kicked the can down the road and continued contributing to a broken financial system. maybe they should have just let the system collapse and let the market enter a natural depression.
Ray Dalio runs the very successful $150 billion Bridgewater Associates hedge fund and he is more than qualified to understand the pathology of debt. His book offers up a template for understanding of how a debt crisis develops where early optimism leads to over-leveraging that can longer be serviced which leads to analyzing the appropriate policy responses to it and a great deal of pain for society as a whole. He also fully understands that once a crisis is in full train there can be very negative political feedbacks that can make things far worse.

To Dalio policy makers have to ignore, at least initially, the problem of moral hazard. That is bailing out the ones who were in up to their eyeballs in making the crisis. He was fully supportive of the banker bailout program which in his opinion and my opinion was necessary to save the system. Where I would differ is that once a crisis has past the critical phase, those responsible have to be held to account. One of the reasons why there is so much populism on the right and the left is that no major banker in the U.S. went to jail. That was unlike the savings and loan scandals of the late 1980s and the dot.com frauds of the late 1990s. Our pagan society needs ritual sacrifices to cleanse the system.

Where his book is most valuable is his discussion of the three major debt crises of the past 100 years Weimar Germany 1918-24, the Great Depression 1928-1937 and the recent Great Financial Crisis of 2007-2011. He goes through each of those crises in great detail and in many cases on a nearly day-by-day basis. In the case of the recent crisis he includes his contemporaneous Bridgewater Daily Observations publication to get his thinking in real time. By doing this he puts you into the shoes of investors and policy makers as they scramble to make sense as to what is going on. In the case of the German hyper-inflation he notes that given all of the constraints that might have been the least bad alternative policy to follow.

Dalio credits the work of Bernanke, Paulson and Geithner in preventing the U.S. in falling into a second great depression after the failure of Lehman Brothers. However letting Lehman go in hindsight looks like a big mistake. However as I have written elsewhere letting Lehman go was analogous to killing the chicken to scare the monkey. He also credits the smooth hand-off between the Bush and Obama administrations which contrasted to the lack of a hand-off between Hoover and Roosevelt in 1933.

I have several quibbles with the book. In the Weimar inflation he rightly notes that the assassination of highly respected finance minister Walter Rathenau made it more difficult for Germany to renegotiate reparations payments, but he ignores the untimely death of foreign minister Gustav Stressemann in 1929 who might have been able to ease Germany’s external debt problem. He further ignores the untimely death of New York Fed president Benjamin Strong in 1928, who in Milton Freidman’s view might have saved the U.S. from the worst of the depression. Dalio, although he mentions it, under-rates the Treasury’s gold sterilization policy in the mid-1930s that triggered the 1937 relapse into depression.

Dalio also ignores the role of Bridgewater during the crisis. After all Bridgewater was part of the problem in that it was very likely they were shorting mortgages, high yield debt, equities, and bank stocks while being long treasuries, the U.S. dollar and gold. How else could Bridgewater have made money in 2008? Lastly the book is too long, but read the three case studies with great care which are magnificent.
Big fan of Dalio and have greatly valued his writings since the GFC. However, this book's charts are not design for black and white, so it's pretty useless on my .
Since 2008 financial "almost" meltdown, I have been more puzzled by the financial market and human behavior when it comes to money. Now in 2018, housing and stock prices at an all-time high while most people are not making more income than they did pre-2008. I also wondered what contributed to the run-up in US financial market vs. other countries. I'm 100 pages into the book and it has already offered me so many perspectives to view what is going on today.

Many looks at the Wall Street as an evil entity, but I believe the financial market can be utilized to create financial freedom for individuals. But first, we must make an effort to understand the game as Warren Buffett said - "Risk comes from not knowing what you're doing."

This is a must-read to understand the world we live in today. I'm grateful that Ray and his team had put a very complex world of finance into simple languages I can understand and offer a comprehensive review of how we got here today.