A Template for Understanding Big Debt Crises

by Ray Dalio

while inflationary depressions are possible in all countries/currencies, they are most common in countries that: Don’t have a reserve currency: So there is not a global bias to hold their currency/debt as a store hold of wealth Have low foreign exchange reserves: So there is not much of a cushion to protect against capital outflows Have a large stock of foreign debt: So there is a vulnerability to the cost of debt rising via increases in either interest rates or the value of the currency the debtor has to deliver, or a shortage of available credit denominated in that currency Have a large and increasing budget and/or current account deficit: So there is a need to borrow or print money to fund the deficits Have negative real interest rates: So lenders are not adequately compensated for holding the currency/debt Have a history of high inflation and negative total returns in the currency: So there is a lack of trust in the value of the currency/debt By the end of the war, the German