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

by Ray Dalio

The central bankers who control money and credit (i.e., central banks) vary the costs and availability of money and credit to control markets and the economy. When the economy is growing too quickly and they want to slow it down, central bankers make less money and credit available, causing both to become more expensive. This encourages people to lend rather than borrow and spend. When there is too little growth and central bankers want to stimulate the economy, they make money and credit cheap and plentiful, which encourages people to borrow and invest and/or spend. These variations in the cost and availability of money and credit also cause the prices and quantities of goods, services, and investment assets to rise and fall. But banks can only control the economy within their capacities to produce money and credit growth, and their capacities to do that are limited.