A Template for Understanding Big Debt Crises

Questions About A Template for Understanding Big Debt Crises

by Ray Dalio (Goodreads Author)

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Answered Questions (2)

Can anyone explain easily what this phrase means? "1) Prices are high relative to traditional measures 2) Prices are discounting future rapid price appreciation from these high levels (Part 1, p20)" Not too sure about the second point. This is about characteristics of bubbles.
Lordy 1. It means the prices are too high relative to a thing. e.g. usually you can buy a house with a year of salary....salary goes up, so does the house p…more1. It means the prices are too high relative to a thing. e.g. usually you can buy a house with a year of salary....salary goes up, so does the house price...but suddenly a house is worth 10 year of salary...that is "high relative to traditional measures"

2. The prices are increasing too fast. In the first example, normally when salary goes up 5%, the house price goes up 5%... but then the bubble comes and suddenly the house is worth 10 years of salary (high level of price)...and next year its 20 years of salary (your salary only goes up 5%, house prices up 100%)

In this example, the house is on the bubble
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On page 35 of book 1, he mentioned about printing too much money can cause "ugly inflationary deleveraging". My question is "is current covid-19 stimulus on the side of too much printing money?" Will we see the effects soon like in few months or in few years?
Eric No, I think they are in fact countering the deflationary effects of the sharp drop in consumer demand by printing money.

Even that might not be enough…moreNo, I think they are in fact countering the deflationary effects of the sharp drop in consumer demand by printing money.

Even that might not be enough to stop the economy from entering a deflationary period.

I think inflation is the last thing the Fed is worried about at this point.

This coronavirus 'bear market' is not like the GFC because there isn't much deleveraging that needs to occur. The economy was humming along nicely before this without excessive debt. We are also a much more diversified economy than we were in 2008. A lot of stuff has just moved online.

But who knows. It is an ongoing crisis and we are only a few months into it. (less)
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