A Template for Understanding Big Debt Crises

by Ray Dalio

But there is such a thing as abusive use of stimulants. Because stimulants work so well relative to the alternatives, there is a real risk that they can be abused, causing an “ugly inflationary deleveraging” (like the Weimar hyperinflation of the 1920s, or those in Argentina and Brazil in the 1980s). The key is to avoid printing too much money. If policy makers achieve the right balance, a deleveraging isn’t so dramatic. Getting this balance right is much more difficult in countries that have a large percentage of debt denominated in foreign currency and owned by foreign investors (as in Weimar Germany and the South American countries) because that debt can’t be monetized or restructured as easily.