If you are reading this blog, you probably want to know how the economy works. Maybe terms like recession, inflation, interest rates, and consumer credit fly through the news but leave you with a vague, uneasy feeling. Watch this video, and you’ll understand how the whole economic machine works.
Econ 101 in 30 Minutes
What are recessions and depressions, why do they happen, and how we correct them? Ray Dallio answers all these questions and more in just 30 minutes of animation packed with information.
Who is Ray Dallio? Founder of Bridgewater Associates, one of the world’s largest hedge funds, and one of the richest 100 people on the planet.
Given current levels of wealth inequality, that short bio might make you suspicious of Dallio, and it’s always good to be skeptical. Still, watch this video and see if it doesn’t make the economy make sense for you.
My Two Takeaways From This Video
As Dallio explains, because our economy relies on credit, we are fated to have economic cycles of expansion and contraction. On a personal level, I think applying how the economy works to daily life means two things:
- Be very conservative with your borrowing. Mortgages, sure. Car and school loans, okay. Anything else–pay with cash.
- Go against the cycle. If you’re smart and watchful, you can make major purchases when prices decline as the economy contracts. My wife bought her townhouse for about half-price after the housing bubble burst. Our low housing costs are a big reason I can afford to do this blog (of course, with a little help from bookstore purchases by you.)