Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail

by Ray Dalio

when the central bank loses its ability to produce money and credit growth that passes through the economic system to produce real economic growth. Throughout history, central governments and central banks have created money and credit, which weakened their own currencies and raised their levels of monetary inflation to offset the deflation that comes from deflationary credit and economic contractions. This typically happens when debt levels are high, interest rates can’t be adequately lowered, and the creation of money and credit increases financial asset prices more than it increases actual economic activity. At such times those who are holding the debt (which is someone else’s promise to give them currency) typically want to exchange the debt they are holding for other storeholds of wealth. Once it is widely perceived that money and debt assets are no longer good storeholds of wealth, the long-term debt cycle is at its end, and a restructuring of the monetary system has to occur.