A short video from Ray Dalio: How the Economic Machine Works

[davelj]

This is a great (animated) video, considering how short it is, that addresses the economy, credit, credit cycles, inflation, reflation, etc. in a very simple way. Many Piggs already have an inkling as to how things work and where we are, but this video is exceptional in tackling our current situation from soup to nuts. (That Dalio is a deci-billionaire is interesting, but beside the point.)

http://www.economicprinciples.org/

Enjoy.

[The-Shoveler]

At bit simplistic If you ask me,

It left out the huge inflation caused by Vietnam war in the 70’s and boomers coming of age etc…

It left out the huge role Owners Equivalent Rent played in the housing bust of the late 80’s and 2007-8 and the huge role it played in reducing inflation etc…

The outsourcing of the 90’s and the Rise of the machines currently being experienced.

How adjusting (or not adjusting ) minimum wage effects inflation/deflation (it’s not just credit and/or printing).

There are a lot of knobs and switches.

Just a little too simplistic.

[davelj]

[quote=The-Shoveler]At bit simplistic If you ask me,
[/quote]

Uh, it’s 30 minutes long. Not a course, but half a class. Can you at least acknowledge that a lot of ground is covered in 30 minutes? Nevermind… that’s a rhetorical question. I almost forgot why I hadn’t posted in six months… now I remember…

[dumbrenter]

thanks for posting it. Informative.

[SK in CV]

I couldn’t listen to it all. There were just too many falsities stated as fact.

[an]

[quote=SK in CV]I couldn’t listen to it all. There were just too many falsities stated as fact.[/quote]
such as?

[SK in CV]

[quote=AN][quote=SK in CV]I couldn’t listen to it all. There were just too many falsities stated as fact.[/quote]
such as?[/quote]

It was a few days ago, the worst I remember is that the only way to make more money is to increase productivity and the only way to increase productivity is to borrow money, or something similar to that.

[EconProf]

This animated video crammed a huge amount of basic economic principles and terms into 30 minutes. It was aimed at about at the ninth-grade level, and would be ideal to show in the first week of a high school economics class. It certainly did not have time to talk about the Vietnam war, theories about the (still-disputed) causes of the recent meltdown, or other specifics.
As to the credibility of its data and principles, I found nothing major to criticize. The author, Ray Dalio has, over three decades, risen to be among the top dozen or so analysts of our economy and business cycles. He is highly respected among his peers, including those who disagree with him. He has grown fabulously wealthy as a wealth manager and advisor and certainly didn’t make this video for the money.
So, davejl, hang in there and don’t give up on Piggington. I remember your prescient comments and generous advice from long ago, and I have missed them.

[CA renter]

Great video, davelj. Many (most) people whom I’ve talked with in the real world with don’t really understand this concept — how credit expansion and contraction works, the causes and effects of it, and why/how it happens. Too many people seem to think that credit expansion (particularly expansion used for consumption, as opposed to self-liquidating debt) can go on forever without any deleterious effects.

I’m going to show this to my kids.

Thanks for sharing.

[dumbrenter]

[quote=SK in CV][quote=AN][quote=SK in CV]I couldn’t listen to it all. There were just too many falsities stated as fact.[/quote]
such as?[/quote]

It was a few days ago, the worst I remember is that the only way to make more money is to increase productivity and the only way to increase productivity is to borrow money, or something similar to that.[/quote]

Thats not true. Pick some other “falsitie”, I’d be interested in it.

[FlyerInHi]

I also found falsities. But i didn’t read the 178+ page PDF that accompanies the video. That document might clarify the video.

For example, Dialo said debt allows us to consume more than we produce. In the aggregate, that cannot physically happen. We can only consume what we produce. Prices rise when there is more demand, but, for example, we cannot consume more housing than we produce.

Just because the guy is rich does not mean he’s truthful and factual.

[FlyerInHi]

[quote=CA renter] Too many people seem to think that credit expansion (particularly expansion used for consumption, as opposed to self-liquidating debt) can go on forever without any deleterious effects.
[/quote]

What is self liquidating debt?

Nominal amount of debt actually increases forever. Debt is double entry CAr. Debt to one party is savings to another.

It’s the ratio of total debt to GDP that matters. We don’t know what that optimal level is for maximum growth; but I imagine it’s higher than it is currently.

[CA renter]

“Definition of ‘Self-Liquidating Loan’
A type of short- or intermediate-term credit that is repaid with money generated by the assets it is used to purchase. The repayment schedule and maturity of a self-liquidating loan are designed to coincide with the timing of the assets’ income generation. These loans are intended to finance purchases that will quickly and reliably generate cash.”

http://thenewprohibition.com/pacific-institute-for-research.php

————

As for GDP, I’m not a fan of using it as a measurement of economic health. GDP that is based primarily on consumption, as opposed to production, is not a particularly good thing, IMHO.

I would also add that I’m not a fan of a debt-based monetary system. Not exactly sure about all of the potential negatives (I’m sure there are more than I can think of at the moment), but I’d rather see the government make zero-interest loans to businesses for expansion, etc.; to offset the fairly constant growth, taxes would be used to shrink the supply of money when necessary.

Or, we could have a system where the government literally prints money to match potential productivity and population growth (tax to shrink). It would probably be unwieldy, but with computing power the way it is, it might be getting easier going forward.

Consumption should be financed by savings, IMO.

[FlyerInHi]

CAr, we need to distinguish the individual from the aggregate.

As the economy grows, we will have more savings and more debt. Debt to one party is asset or savings to another party. So as an economy, we cannot payoff debt.

[FlyerInHi]

Another falsity is that we are borrowing from our future selves bit. Why not keep it simple say that we are borrowing from someone else (or our aggregate selves) in the present?

First, we cannot borrow from the future, if that’s what he meant.

Also why would repaying debt in the future cause a cycle? Sure the people repaying debt would have less money to spend. But that would be negated by the other side of the transaction. As Dialo illustrated, there are two sides to each transaction. It’s total spending that matters

[Author]

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