A Template for Understanding Big Debt Crises

by Ray Dalio

humans by nature (like most species) tend to move in crowds and weigh recent experience more heavily than is appropriate. In these ways, and because the consensus view is reflected in the price, extrapolation tends to occur.

ignorance and a lack of authority are bigger problems than debts themselves.

What they do with that money and credit makes all the difference in the world. When they invest in the sort of assets that finance spending, that stimulates the economy. When they invest in those that don’t (such as financial assets), there must be very large market gains before any money trickles down into spending—and that spending comes more from those who have enjoyed the market gains than from those who haven’t.

In other words, QE certainly benefits investors/savers (i.e., those who own financial assets) much more than people who don’t, thus widening the wealth gap.

Devaluing currencies is like using cocaine, in that it provides short-term stimulation but is ruinous when abused.