How The Economic Machine Works by Ray Dalio

How the economic machine works, in 30 minutes. The economy works like a simple machine. But many people don’t understand it — or they don’t agree on how it works — and this has led to a lot of needless economic suffering. I feel a deep sense of responsibility to share my simple but practical economic template. Though it’s unconventional, it has helped me to anticipate
and sidestep the global financial crisis, and has worked well for me for over 30 years. Let’s begin. Though the economy might seem complex,
it works in a simple, mechanical way. It’s made up of a few simple parts and a lot of simple transactions that are repeated over and over again a zillion times. These transactions are above all else driven by human nature, and they create 3 main forces that drive the economy. Number 1: Productivity growth Number 2: The Short term debt cycle and Number 3: The Long term debt cycle We’ll look at these three forces
and how laying them on top of each other creates a good template for tracking economic movements and figuring out what’s happening now. Let’s start with the simplest part of the economy: Transactions. An economy is simply the sum
of the transactions that make it up and a transaction is a very simple thing. You make transactions all the time. Every time you buy something
you create a transaction. Each transaction consists of a buyer exchanging money or credit with a seller for goods,
services or financial assets. Credit spends just like money, so adding together the money spent
and the amount of credit spent, you can know the total spending. The total amount of spending
drives the economy. If you divide the amount spent by the quantity sold, you get the price. And that’s it. That’s a transaction. It is the building block
of the economic machine. All cycles and all forces
in an economy are driven by transactions. So, if we can
understand transactions, we can understand
the whole economy. A market consists of all the buyers and all the sellers making transactions for the same thing. For example,
there is a wheat market, a car market, a stock market and markets
for millions of things. An economy consists
of all of the transactions in all of its markets. If you add up
the total spending and the total
quantity sold in all of the markets, you have everything
you need to know to understand the economy. It’s just that simple. People, businesses, banks and governments all engage in transactions
the way I just described: exchanging money and credit
for goods, services and financial assets. The biggest buyer and seller
is the government, which consists of two important parts: a Central Government
that collects taxes and spends money… …and a Central Bank, which is different from other buyers
and sellers because it controls the amount of money
and credit in the economy. It does this by influencing
interest rates and printing new money. For these reasons,
as we’ll see, the Central Bank is an
important player in the flow of Credit. I want you to
pay attention to credit. Credit is the most
important part of the economy, and probably the least understood. It is the most important part
because it is the biggest and most volatile part. Just like buyers and sellers
go to the market to make transactions, so do lenders and borrowers. Lenders usually want to
make their money into more money and borrowers usually want to
buy something they can’t afford, like a house or car or they want to invest in
something like starting a business. Credit can help both lenders and borrowers get what they want. Borrowers promise to
repay the amount they borrow, called the principal, plus an additional amount, called interest. When interest rates are high, there is less borrowing
because it’s expensive. When interest rates are low, borrowing increases
because it’s cheaper. When borrowers promise to repay and lenders believe them, credit is created. Any two people can agree
to create credit out of thin air! That seems simple enough
but credit is tricky because it has different names. As soon as credit is created, it immediately turns into debt. Debt is both an asset to the lender, and a liability to the borrower. In the future, when the borrower repays the loan,
plus interest, the asset and liability disappear and the transaction is settled. So, why is credit so important? Because when a borrower receives credit, he is able to increase his spending. And remember,
spending drives the economy. This is because one person’s spending is another person’s income. Think about it,
every dollar you spend, someone else earns. and every dollar you earn,
someone else has spent. So when you spend more,
someone else earns more. When someone’s income rises it makes lenders more willing
to lend him money because now he’s
more worthy of credit. A creditworthy borrower
has two things: the ability to repay and collateral. Having a lot of income in relation to his debt gives him the ability to repay. In the event that he can’t repay, he has valuable assets to use as collateral that can be sold. This makes lenders feel comfortable lending him money. So increased income allows increased borrowing which allows increased spending. And since one person’s spending is another person’s income, this leads to more increased borrowing and so on. This self-reinforcing pattern leads to economic growth and is why we have Cycles. In a transaction, you have to give something in order to get something and how much you get depends on how much
you produce over time we learned and that accumulated knowledge raises
are living standards we call this productivity growth those who were invented and hard-working raise their productivity and their living
standards faster than those who are complacent and lazy, but that isn’t necessarily true over the short run. Productivity matters most in the long run, but credit matters most in the short run. This is because productivity growth doesn’t fluctuate much, so it’s not a big driver of economic swings. Debt is — because it allows us to consume more than we produce when we acquire it and it forces us to consume less than we produce when we pay it back. Debt swings occur in two big cycles. One takes about 5 to 8 years and the other takes about 75 to 100 years. While most people feel the swings, they typically don’t see them as cycles because they see them too up close — day by day, week by week. In this chapter we are going to step back and look at these three big forces and how they interact to make up our experiences. As mentioned, swings around the line are not due to how much innovation or hard work there is, they’re primarily due to how much credit there is. Let’s for a second imagine an economy without credit. In this economy, the only way I can increase my spending is to increase my income, which requires me to be more productive and do more work. Increased productivity is the only way for growth. Since my spending is another person’s income, the economy grows every time I or anyone else is more productive. If we follow the transactions and play this out, we see a progression like the productivity growth line. But because we borrow, we have cycles. This isn’t due to any laws or regulation, it’s due to human nature and the way that credit works. Think of borrowing as simply a way of pulling spending forward. In order to buy something you can’t afford, you need to spend more than you make. To do this, you essentially need to borrow from your future self. In doing so you create a time in the future that you need to spend less than you make in order to pay it back. It very quickly resembles a cycle. Basically, anytime you borrow you create a cycle.? This is as true for an individual as it is for the economy. This is why understanding credit is so important because it sets into motion a mechanical, predictable series of events that will happen in the future. This makes credit different from money. Money is what you settle transactions with. When you buy a beer from a bartender with cash, the transaction is settled immediately. But when you buy a beer with credit, it’s like starting a bar tab. You’re saying you promise to pay in the future. Together you and the bartender create an asset and a liability. You just created credit. Out of thin air. It’s not until you pay the bar tab later that the asset and liability disappear, the debt goes away and the transaction is settled. The reality is that most of what people call money is actually credit. The total amount of credit in the United States is about $50 trillion and the total amount of money is only about $3 trillion. Remember, in an economy without credit: the only way to increase your spending is to produce more. But in an economy with credit, you can also increase your spending by borrowing. As a result, an economy with credit has more spending and allows incomes to rise faster than productivity over the short run, but not over the long run. Now, don’t get me wrong, credit isn’t necessarily something bad that just causes cycles. It’s bad when it finances over-consumption that can’t be paid back. However, it’s good when it efficiently allocates resources and produces income so you can pay back the debt. For example, if you borrow money to buy a big TV, it doesn’t generate income
for you to pay back the debt. But, if you borrow money
to buy a tractor — and that tractor let’s you harvest
more crops and earn more money — then, you can pay back your debt and improve your living standards. In an economy with credit, we can follow the transactions and see how credit creates growth. Let me give you an example: Suppose you earn $100,000 a year and have no debt. You are creditworthy enough to borrow $10,000 dollars – say on a credit card – so you can spend $110,000 dollars even though you only earn $100,000 dollars. Since your spending is another person’s income, someone is earning $110,000 dollars. The person earning $110,000 dollars with no debt can borrow $11,000 dollars, so he can spend $121,000 dollars even though he has only earned $110,000 dollars. His spending is another person’s income and by following the transactions we can begin to see how this process works in a self-reinforcing pattern. But remember, borrowing creates cycles and if the cycle goes up, it eventually needs to come down. This leads us into the Short Term Debt Cycle. As economic activity increases, we see an expansion – the first phase of the short term debt cycle. Spending continues to increase and prices start to rise. This happens because the increase in spending is fueled by credit – which can be created instantly out of thin air. When the amount of spending and incomes grow faster than the production of goods: prices rise. When prices rise, we call this inflation. The Central Bank doesn’t want too much inflation because it causes problems. Seeing prices rise, it raises interest rates. With higher interest rates, fewer people can afford to borrow money. And the cost of existing debts rises. Think about this as the monthly payments
on your credit card going up. Because people borrow less and have higher debt repayments, they have less money leftover to spend, so spending slows …and since one person’s spending is another person’s income, incomes drop…and so on and so forth. When people spend less, prices go down. We call this deflation. Economic activity decreases and we have a recession. If the recession becomes too severe and inflation is no longer a problem, the central bank will lower interest rates to cause everything to pick up again. With low interest rates, debt repayments are reduced and borrowing and spending pick up and we see another expansion. As you can see, the economy works like a machine. In the short term debt cycle,
spending is constrained only by the willingness of lenders and borrowers to provide and receive credit. When credit is easily available,
there’s an economic expansion. When credit isn’t easily available,
there’s a recession. And note that this cycle is controlled primarily by the central bank. The short term debt cycle typically lasts 5 – 8 years and happens over and over again for decades. But notice that the bottom and top of each cycle finish with more growth than the previous cycle and with more debt. Why? Because people push it — they have an inclination to borrow
and spend more instead of paying back debt. It’s human nature. Because of this, over long periods of time, debts rise faster than incomes creating the Long Term Debt Cycle. Despite people becoming more indebted, lenders even more freely extend credit. Why? Because everybody thinks things are going great! People are just focusing on what’s been happening lately. And what has been happening lately? Incomes have been rising! Asset values are going up! The stock market roars! It’s a boom! It pays to buy goods, services, and financial assets with borrowed money! When people do a lot of that, we call it a bubble. So even though debts have been growing, incomes have been growing nearly as fast to offset them. Let’s call the ratio of debt-to-income the debt burden. So long as incomes continue to rise, the debt burden stays manageable. At the same time asset values soar. People borrow huge amounts of money to buy assets as investments causing their prices to rise even higher. People feel wealthy. So even with the accumulation of lots of debt, rising incomes and asset values
help borrowers remain creditworthy for a long time. But this obviously can not continue forever. And it doesn’t. Over decades, debt burdens slowly increase
creating larger and larger debt repayments. At some point, debt repayments start growing faster than incomes forcing people to cut back on their spending. And since one person’s spending is another person’s income, incomes begin to go down… …which makes people less creditworthy
causing borrowing to go down. Debt repayments continue to rise which makes spending drop even further… …and the cycle reverses itself. This is the long term debt peak. Debt burdens have simply become too big. For the United States, Europe and much of the rest of the world this happened in 2008. It happened for the same reason it happened in Japan in 1989 and in the United States back in 1929. Now the economy begins Deleveraging. In a deleveraging; people cut spending, incomes fall, credit disappears, assets prices drop, banks get squeezed, the stock market crashes, social tensions rise and the whole thing starts to feed on itself the other way. As incomes fall and debt repayments rise, borrowers get squeezed.
No longer creditworthy, credit dries up and borrowers can no longer borrow
enough money to make their debt repayments. Scrambling to fill this hole, borrowers are forced to sell assets. The rush to sell assets floods the market This is when the stock market collapses, the real estate market tanks and banks get into trouble. As asset prices drop, the value of the collateral borrowers can put up drops. This makes borrowers even less creditworthy. People feel poor. Credit rapidly disappears.
Less spending › less income › less wealth › less credit › less borrowing and so on. It’s a vicious cycle. This appears similar to a recession but the difference here is that interest rates can’t be lowered to save the day. In a recession, lowering interest rates works to stimulate the borrowing. However, in a deleveraging, lowering interest rates doesn’t work because interest rates are already low and soon hit 0% – so the stimulation ends. Interest rates in the United States hit 0% during the deleveraging of the 1930s and again in 2008. The difference between a recession and a deleveraging is that in a deleveraging borrowers’ debt burdens have simply gotten too big and can’t be relieved by lowering interest rates. Lenders realize that debts have become too large to ever be fully paid back. Borrowers have lost their ability to repay and their collateral has lost value. They feel crippled by the debt – they don’t even want more! Lenders stop lending.
Borrowers stop borrowing. Think of the economy as being not-creditworthy, just like an individual. So what do you do about a deleveraging? The problem is debt burdens are too high and they must come down. There are four ways this can happen. 1. people, businesses, and governments cut their spending. 2. debts are reduced through defaults and restructurings. 3. wealth is redistributed from the ‘haves’ to the ‘have nots’. and finally, 4. the central bank prints new money. These 4 ways have happened in every deleveraging in modern history. Usually, spending is cut first. As we just saw, people, businesses, banks and even governments tighten their belts and cut their spending so that they can pay down their debt. This is often referred to as austerity. When borrowers stop taking on new debts, and start paying down old debts, you might expect the debt burden to decrease. But the opposite happens!
Because spending is cut – and one man’s spending is another man’s income – it causes incomes to fall.
They fall faster than debts are repaid and the debt burden actually gets worse.
As we’ve seen, this cut in spending is deflationary and painful. Businesses are forced to cut costs… which means less jobs and higher unemployment. This leads to the next step: debts must be reduced! Many borrowers find themselves unable to repay their loans — and a borrower’s debts are a lender’s assets. When borrowers don’t repay the bank,
people get nervous that the bank won’t be able to repay them so they rush to withdraw their money from the bank.
Banks get squeezed and people, businesses and banks default on their debts.
This severe economic contraction is a depression. A big part of a depression is people discovering much of what they thought was their wealth isn’t really there. Let’s go back to the bar. When you bought a beer and put it on a bar tab, you promised to repay the bartender.
Your promise became an asset of the bartender. But if you break your promise
– if you don’t pay him back and essentially default on your bar tab – then the ‘asset’ he has isn’t really worth anything. It has basically disappeared. Many lenders don’t want their assets to disappear and agree to debt restructuring. Debt restructuring means lenders get paid back less or get paid back over a longer time frame or at a lower interest rate that was first agreed.
Somehow a contract is broken in a way that reduces debt.
Lenders would rather have a little of something than all of nothing. Even though debt disappears, debt restructuring causes income and asset values to disappear
faster, so the debt burden continues to gets worse. Like cutting spending, debt reduction is also painful and deflationary. All of this impacts the central government because lower incomes and less employment means the government collects fewer taxes. At the same time it needs to increase its spending because unemployment has risen. Many of the unemployed have inadequate savings and need financial support from the government. Additionally, governments create stimulus plans and increase their spending to make up for the decrease in the economy. Governments’ budget deficits explode in a deleveraging because they spend more than they earn in taxes. This is what is happening when you hear about the budget deficit on the news. To fund their deficits, governments need to either raise taxes or borrow money.
But with incomes falling and so many unemployed, who is the money going to come from?
The rich. Since governments need more money and since wealth is heavily concentrated in the hands of a small percentage of the people, governments naturally raise taxes on the wealthy which facilitates a redistribution of wealth in the economy – from the ‘haves’ to the ‘have nots’.
The ‘have-nots,’ who are suffering, begin to resent the wealthy ‘haves.’ The wealthy ‘haves,’ being squeezed by the weak economy, falling asset prices, higher taxes, begin to resent the ‘have nots.’ If the depression continues social disorder can break out. Not only do tensions rise within countries, they can rise between countries – especially debtor and creditor countries. This situation can lead to political change that can sometimes be extreme. In the 1930s, this led to Hitler coming to power, war in Europe, and depression in the United States. Pressure to do something to end the depression increases. Remember, most of what people thought was money was actually credit. So, when credit disappears, people don’t have enough money. People are desperate for money and you remember who can print money? The Central Bank can. Having already lowered its interest rates to nearly 0 – it’s forced to print money. Unlike cutting spending, debt reduction, and wealth redistribution, printing money is inflationary and stimulative. Inevitably, the central bank prints new money — out of thin air — and uses it to buy financial assets and government bonds. It happened in the United States during the Great Depression and again in 2008, when the United States’ central bank — the Federal Reserve — printed over two trillion dollars. Other central banks around the world that could,
printed a lot of money, too. By buying financial assets with this money, it helps drive up asset prices which makes people more creditworthy. However, this only helps those who own financial assets. You see, the central bank can print money but it can only buy financial assets. The Central Government, on the other hand, can buy goods and services and put money in the hands of the people but it can’t print money. So, in order to stimulate the economy, the two must cooperate. By buying government bonds, the Central Bank essentially lends money to the government, allowing it to run a deficit and increase spending on goods and services through its stimulus programs and unemployment benefits. This increases people’s income as well as the government’s debt. However, it will lower the economy’s total debt burden. This is a very risky time. Policy makers need to balance the four ways that debt burdens come down. The deflationary ways need to balance with the inflationary ways in order to maintain stability. If balanced correctly, there can be a Beautiful Deleveraging. You see, a deleveraging can be ugly or it can be beautiful. How can a deleveraging be beautiful? Even though a deleveraging is a difficult situation, handling a difficult situation in the best possible way is beautiful. A lot more beautiful than the debt-fueled, unbalanced excesses of the leveraging phase.
In a beautiful deleveraging, debts decline relative to income, real economic growth is positive, and inflation isn’t a problem.
It is achieved by having the right balance. The right balance requires a certain mix of cutting spending, reducing debt, transferring wealth and printing money so that economic and social stability can be maintained. People ask if printing money will raise inflation. It won’t if it offsets falling credit.
Remember, spending is what matters. A dollar of spending paid for with money has the same effect on price as a dollar of spending paid for with credit. By printing money, the Central Bank can make up for the disappearance of credit with an increase in the amount of money. In order to turn things around, the Central Bank needs to not only pump up income growth but get the rate of income growth higher than the rate of interest on the accumulated debt. So, what do I mean by that? Basically, income needs to grow faster than debt grows. For example: let’s assume that a country going through a deleveraging has a debt-to- income ratio of 100%. That means that the amount of debt it has is the same as the amount of income the entire country makes in a year. Now think about the interest rate on that debt, let’s say it is 2%. If debt is growing at 2% because of that interest rate and income is only growing at around only 1%, you will never reduce the debt burden. You need to print enough money to get the rate of income growth above the rate of interest. However, printing money can easily be abused because it’s so easy to do and people prefer it to the alternatives. The key is to avoid printing too much money and causing unacceptably high inflation, the way Germany did during its deleveraging in the 1920’s. If policymakers achieve the right balance, a deleveraging isn’t so dramatic. Growth is slow but debt burdens go down. That’s a beautiful deleveraging. When incomes begin to rise, borrowers begin to appear more creditworthy. And when borrowers appear more creditworthy, lenders begin to lend money again.
Debt burdens finally begin to fall. Able to borrow money, people can spend more. Eventually, the economy begins to grow again, leading to the reflation phase of the long term debt cycle. Though the deleveraging process can be horrible if handled badly, if handled well, it will eventually fix the problem. It takes roughly a decade or more for debt burdens to fall and economic activity to get back to normal – hence the term ‘lost decade.’ Of course, the economy is a little more complicated than this template suggests. However, laying the short term debt cycle on top of the long term debt cycle and then laying both of them on top of the productivity growth line gives a reasonably good template for seeing where we’ve been, where we are now and where we are probably headed. So in summary, there are three rules of thumb that I’d like you to take away from this: First:
Don’t have debt rise faster than income, because your debt burdens will eventually crush you. Second:
Don’t have income rise faster than productivity, because you will eventually become uncompetitive. And third:
Do all that you can to raise your productivity, because, in the long run, that’s what matters most. This is simple advice for you and it’s simple advice for policy makers. You might be surprised but most people — including most policy makers — don’t pay enough attention to this. This template has worked for me and I hope that it’ll work for you. Thank you.

About the author


  1. Yeah, this is total nonsense. ALL money is credit. Not all money is circulating currency, but that has nothing to do with the remainder of the explanation.

  2. Amazing video that explain how money works and how economy crashes come about. Thank you for sharing these in such an animated form. 🥰

  3. >The central bank arbitrarily controls interest rates
    >The central bank fosters unconscionable growth
    >The central bank then cashes in on their credit and triggers a recession
    >During this entire process they were also amassing immense wealth that dwarves even the government's
    >The government now needs the central bank's cooperation to not get killed in a coup
    >The central bank now has a stranglehold not only on your wealth, but on your politicians and lawmakers
    >Also let's just print money out of thin air because that won't raise inflation at all 27:15 lmao

    Amazing system, thank you Nixon for taking the dollar off the gold standard and turning the Central Bank and the Federal Reserve Banks into our eternal overlords.

  4. So what you are saying is that you should get rid of credit and debt so there is only a gradual growth built upon productivity? Instead of the roller coaster economy, we can just gradually get better (and have savings). I prefer the long view instead of the quick buck and tanking economy. Now if only I did not have my student debts…

  5. I was so confused on the part where the Government have to borrow money from the Central Bank in which the Central Bank is allowed to print money out of thin AIR. (AND ON TOP OF THAT THE GOVERNMENT CAN'T). Can someone explain that.

  6. Why this borrowing is being given so much importance, why cant humanity go after real physical trade and remove paper money as this is the only basic of this economic form. There is only one devil and that is paper money. As this creates facke transaction and economic activity.

    Now the humanity must come out of this shit by opting physical exchange

    If you know of students who would like to become entrepreneurs please have them watch this channel

    Economics for inventionmaking

    step #1  

    I guarantee it will be the best way to make new business and invention ideas!!

  8. A well-done video visually, but disturbing to voluntaryists like myself.

    The nice music of the "beautiful deleveraging" is masking violence. Violence is rarely applied and usually used through its threat. The government extorts money from people through threat of violence.

    Instead of being taxed, the wealthy can do several things with that money.
    (1) Build businesses and hire people. Since labor is cheap, it's a great time to start a business (assuming you're selling something that people really need, or lay the foundation (R&D, for example) for a want-based business that will expand later on when people have more money to spend on that want.
    (2) Buy stuff. This also puts people to work.

    (3) Save their money. More money is available to lend when more is saved.
    (4) Burn it. Less money means the money that's left is worth more. I say this just to demonstrate a principle, obviously.

    When violence is used, higher-earners don't feel financially safe. They become aware that they are what Libertarians call "tax cattle". Those who can leave, do, and take their wealth-building talents elsewhere. This hurts all the other people in the long run.

    I'm not an economist or an expert, but you can easily learn more about the anti-violent perspective. Google words like "libertarian", "voluntaryist", "anarchist" (but understand that some people who want mob-rule call themselves an-archists, which is completely contradictory), "free market", etc.

  9. Don be fooled by this travesty of real-world economics. From where do the raw materials for production come from?

  10. Fantastic, so to be the one at the head of the central bank, which is separate from government, is to be in charge. Everyone else works for each other developing societies and technologies, while they just watch and collect and move money.

  11. But then the system forces you to spend in useless things as long as it moves money. It is a materialistic society that controls the level of satisfaction based on material owning

  12. Productivity is the real engine and debt should be used only when needed for expansion but not forced spending. Plus, interest should be minimum so people dont risk their assets to repay.

  13. Give a man a gun and he can rob a bank,

    Give a man a bank and he can rob everyone..

    “All problems, depressions, wars, disasters, assassinations ‒ all
    of them were planned, caused, instigated, and implemented by the
    international bankers and their attempt to establish a central bank in
    every country in the world, which they have now
    done, thanks to corrupt politicians who have been bought and paid for.
    This is all you need to know about the history of the world.” ‒ Mary
    Elizabeth Croft
    “GIVE me control of a nation's money supply,
    and I care not who makes its laws.” Mayer Amschel Rothschild

  14. got a econ major but still amazed how Ray Dalio able to explain this whole complicated system in a simple and initutive way.

  15. What I basically miss is the point of "central bank raised interest rate when we're at the end of expansion cycle, it slows doen activity, and then bank decrease rate to stimulate growth"

    Since 2012 rate was high, but the growth was higher. Now FED is cutting rates each month (chatting here from october 2019) but everyone is watching out for recession. Why ?

  16. "…since one person's spending is another persons income…"

    How is debt repayment not an expenditure, or spending? 16:02 Does it not refill the coffers of the lenders so that they are prompted to lend more as inflation outpaces interest from banks or less risky places to store money? Just curious…

  17. Do people not borrow money at different times? Trying to comprehend why there is a consensus of credit buying and debt repaying like illustrated in the long term debt cycle. Why isn't the randomness of individuals' needs or wants for credit offset the cyclical nature? When Bob needs to borrow 15k, Samantha is repaying her 15k, one persons reduced spending cycle is another persons increased spending cycle???

  18. Holy crap why do I even go to school to be kill my individuality when I can empower myself to learn whatever I want, whenever I want, at whatever depth I seek!?

  19. I watched this over a few days bc my kid wasn't sleeping well. Completely worth it. Wish this was required for every human over 18.

  20. Your whole explanation of how the system works is completely theoretical. You don't even get into who OWNS the 'means of production'. Your example shows YOU as productive but your productivity is your own. NOT if you work for someone else, the more productive 'you' are don't necessarily mean 'you' are rewarded for that increase. Theoretical, it's a democratic system, actually: not so much.

  21. So central bank gets the initial value of printed money and in exchange they get solid assets out of thin air

  22. Do any of you smart people know where we’re currently at in the long term debt cycle? If the depression started in 2008 and lasted 2-3 years, and reflation lasts 7-10 years, then comes leveraging, are we currently in the reflation period, the “lost decade?” If so, we have a good 50+ years ahead?

  23. Bull pucky! It works because the few have convinced the many that their worthless trinkets of metal disks, printed pieces of paper or, as in today, numbers printed on an "official" ledger are worthy for equal exchange for the actual products and services the idiot chattel perform that humanity uses to try and sustain life as needed or comfort life as desired. How the economic "machine" works is the same as how a magician convinces his audience that he has magical powers. Both use illusion and ignorance of it's secrets, which is that there is no magic in the magician nor any worth in the currency that we workers trade for our goods and services we PRODUCE. Most have figured out that magicians are no longer magicians but illusionists who are taught the art of fooling the audience. I am just waiting for the day that the masses have figured out that what we call currency is nothing but the illusion and worth nothing and the products created by our work and services is actually the REAL WEALTH of our society and not the illusion of today's currency.

  24. The presenter oversimplifies, but fails to address greedy central economic planners who could care less for recessions as they fill their coffers and that of their friends while the debt bubble bursts for everyone else. Though he nods that way when he says, "if policymakers…", but policymakers have NOT EVER been able to determine market values with fiat currency, EVER. This is why ALL fiat currencies have faileda nd millions starve and die. These "wealth" and debt (death) cycles occur BECAUSE of central economic planning and its incompetence, allowed to remain because of our ignorance.

    In addition, the velocity of currency (how much people spend) during a recession, and especially during a depression is not necessarily stimulated by quantitative easing (currency creation) because you cant make people spend newly printed currency if people feel that the economy will do worse and that their currency is untrustworthy because of deficit spending, and long the threat of a Weimar like hyper inflation made possible by the return of previously exported inflation. And why so much deficit spending? WAR, ENDLESS WAR, and endless promises of wealth redistribution. During these times, people will save, and this is deflationary. Or they will exit the debt cycle paradigm and store their wealth in something that retains its value in the long run, like gold and silver, and other commodities.

  25. Actually you can increase money not only by being productive. You can also increase it through investing in stocks or crypto.

  26. Https:// – Worried about the current financial system DICTATING your daily life? Through a cooperative bank in formation for, by and of the People, we can create an alternative financial system that is SUPPORTING your daily life. Become co-owner through : A real & feasible solution. Fighting the system that exists for hundreds of years is not realistic and not necessary! Let’s take ownership and responsibility together.

  27. I think we need a new economic machine which will run for poor peoble and environment , the present economic machine was invented by those who want to steal poor peoble s money by using interest

  28. We’re seeing consumer spending slowing, car loan defaults up, student loan defaults up, inverted curve…I think we are in a recession already.

  29. This video is complete bullshit. Workforce productivity has increased significantly over the last few decades, yet wages have stagnated.

  30. The credit is the most venom creature run by Banks in iur century. The only salvation is in blockchain technology and cryptocurrency. And it is coming, unstoppable.

  31. Don't listen to this crap!!

    For someone to spend on something fist there has to be someone to save, this is a Keynesian school, listen to the real school of economics: it's call Austrian school.

  32. good video. Ray Dalio should read Restoring Power and Democracy back to the People as it explains this debt and speculation cycle more deeply and provides innovative solutions

  33. Really. This has been probably the best video I have ever watched. We all should get educated about economy. It's the most important subject for any civilised human society. For some reason poetry and science are given so much priority in our schooling, but not economy. Even though its the oxygen for a healthy civilised society.
    The topic of money has always been a taboo in my school days god knows why.

  34. How credit and finance really work! Prof Dr Richard Werner, many books, see Princes of the Yen,
    Video: Are banks good or bad?
    Banks do not lend money, no such thing as deposits, fraud in mortgages, banks suck money from the economy.

  35. What happens to the people puffing out in the video when in the real world? It seems like a poor system that we have, with hunger poverty etc. I would appreciate your views on this idea of a "resource based economy":
    Thanks 🙂

  36. So if the inventive person is hard working while those that didn't get the hand out from dad are lazy, what do you call a banker that loses all the money and goes to the government to look for a bail out?  Did you know that the next crash there will be no bail out and the banks will use the FDIC to get the money? As always the FDIC will hand out the security starting with those having up to $250000 and work themselves down to those having only $2000 if they still have funds left. So as you see it is all by design to stick it to the little people. The rich and the government are in bed together and the only losers are us.

  37. Van Gogh is lazy hahh? Owh no he WAS lazy back then but after he died you feasted on his corpse and made a lot of money.

  38. Thanks for sharing. Beautiful explanation and the animated video!
    Wonder if anyone know how this animation is done… using any video making tools?

  39. It's ironic how confidently Ray talks about the simplicity of the economy then proceeds to get it ass backwards as he talks about how the Fed and government save us from depressions lol

  40. Okay so I'm ready to run the World Bank or Fed. Seriously during this 30min video I've learnt more about economics through visual presentation than learning about economics at college. I've trawled through literally hundreds of documentaries over past 10 years trying to understand the economic crisis and collapse of banks, now i understand the role of all the players. Will their be a video on on what caused the investment banks (Eg Bear Stearns & Lehman Brothers) to collapse, their speculative trading, bubbles and poor risk management.

  41. 25:45 Basically this segment is where it all went wrong, and is continuing to go wrong for the economy. The government borrowed printed money from the central bank and instead of using it to provide government goods & services (e.g. infrastructure improvement and investment, welfare payments, increase the number of government jobs) to stimulate the economy by DIRECTLY PAYING its citizens through employment, the government instead decided to give this money directly to the investment banks to distribute by providing availability of loans to citizens. 

    Except the banks didn't use this money to provide loans to citizens to spend which would have stimulated the economy. Instead this money was used by themselves without any regulations or monitoring in place. The newly printed money went directly into the coffers of the already wealthy, super rich, elite banking class. The bankers paid themselves huge bonuses, bought chateau's, yachts, helicopters, penthouses etc with this free money with the notion they would be indirectly stimulating the economy by spending it on these luxury items for themselves and believed the money would then trickle down to the people who need it the most, instead of actually providing loans through their banks to citizens as the government intended so citizens could spend to stimulate the economy and increase growth. 

    What we’ve observed over the past decade since the banking & economic crisis of 2008, is that this money didn't trickle down to people who needed it the most because of unavailability and access to bank loans. Other reasons why the money doesn’t trickle down is because the rich can avoid progressive taxes (19:15), which consequently forces the government to increase stealth taxes on the already beleaguered poor, thus increasing poverty, and their inability to pay off their debts or to spend which affects the economy even further (downwards spiral: depression). The economy it seems is structured to enable money to flow upwards and not downwards. The reason for this is simple, the bankers who worked for the banks now run the central banks, key government positions, and regulators. So the rich and powerful become increasingly powerful, whilst the other 99% question their very reason to exist. 

    So how are the poorest going to stimulate the economy through spending, if the printed money is not finding its way to those who need it? Also on top of this how are the poorest people going to stimulate the economy if they have no money to spend because they are being taxed more (stealth taxes imposed because rich are evading progressive taxes), find themselves on lower incomes (because of poor health of economy and thus job availability), with austerity measures imposed on them (government services cut) and unable to borrow money due to unavailability of loans and poor credit because they are unable to get agreements with lenders to restructure their loans, instead they facing repossession and foreclosure?

  42. 19:20 The government’s flawed economic stimulation measures: (Flawed because the government itself is a “captured state”, and therefore undemocratic because it no longer represents the interest of the people. The government, its institutions and its departments which manage the economy is run “captured” by the very bankers and financiers it has bailed out, “the revolving door”.)

    1. Cut Spending: Austerity measure meant poor had less government services available to them. Whilst also increasingly unemployment by cutting down government jobs. Overall this resulted in less stimulation and increased pressure on the government to either borrow money (bonds) or print money. (The government and people cut their spending, whilst the banks and the bankers increased their spending from the taxpayer funded bailout). 

    2. Reduce Debt: It did not offer citizens a debt reduction option for their debts. Instead it used tax payers money to bail out the banks out of their debt, by restructuring their loans. Any remaining surplus was spent on bankers bonuses and used to buy government bonds. In other words increasing the government’s debt, having first been bailed out of debt by the government (tax payer) itself. Thus covertly then transferring its own debt on to the government. The government is faced to sell bonds because of its shortfall in tax revenues because ironically it spent the money bailing out the banks. Consequently the government has to increase taxes on the tax payer to “pay back the banks”, for the bonds sold to them to raise government funds. 

    3. Redistribute Wealth: Didn’t not enforce progressive taxation on the rich in order to redistribute wealth (because wealthy have offshore accounts). Instead to compensate they increased stealth taxes and introduced new ones to make up for decrease in tax revenue. By doing this the government “redistributed” wealth from the poorest to wealthiest. 

    4. Print Money: Instead of distributing it to the citizens through government stimulus programs and increasingly government services and employment, it gave the money directly to the banks it had previously bailed out. The banks used this money to pay themselves huge bonuses and spent on luxury items with the belief that they will be indirectly stimulating the economy because the money would trickle down and stimulate the economy. All this printed money is having the affect of increasing inflation thus making it harder for the poorest to afford simple things. Additionally it is diluting the value of the dollar,especially since it is not linked to “gold standard”. Most of this money is being used by investment banks to buy gold. When the economy has to reset itself and government will go back to the “gold standard” who do you think is going to sell them that gold at an inflated price? Further if the dollar is loosing it’s intrinsics value you can understand why all these bankers are buy up “other currencies” which are more stable, namely stocks of of high performing companies on the S&P500, fine art, luxury properties overseas etc. This is a covert well co-ordinated game being played across multiple borders, with the co-operation of key individuals  who are embedded in our economic and government system  “Spectre”. 

    Everyone of these above measures was used to bankrupt the citizens and increase their level of poverty. Most of this money is then shared by super elite and distributed various departments which run the the deep state “a government within a government”, which is undemocratic and controls the government we elect.

  43. Time 6:38 We are told that "hard working, inventive people raise their productivity standard faster than those who are complacent, and lazy". We have to quit believing such baloney!
    Please consider the following article by ~~~Scientific American Magazine~~~:

  44. If only the average person would spend this half hour, they would have a much better view of the larger picture that their instincts are giving them anyway. And we'd all be better citizens for it.

  45. the reason we have poor economics is that people did not create growth using debt rather used it for consumption which is toxic to the group
    the banks did not check well if the debt is for growth or consumption. they failed their job.
    people don't know know how to create growth of contribution.

    the human problem is:
    because creating growth requires thinking.

  46. This is by far the most briliant video about how economic works. In contains every important aspect in only 30 mins. The video editing is also SUPERB. I have seen this video twice and I will watch it several times more. Great! Thank you for your effort creating this video. It's realy eye opening.

  47. I was trying to understand this topic and how beautifully you described it.
    That's the best educational that we can get I wish we have more professor like him ♥️
    Thankyou so much sir ♥️

  48. This 31 minute video does more for your understanding of the economy than the economic "education" you get in school. Money is created by (central) banks out of thin air and you pay it back plus interest, earned by productive work/smart investing. Let that sink in. To finance your dreams you sell a part of your life. The mystery of banking explained.

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