HN Theater @HNTheaterMonth

⬐ sanman811

Stumbled across this a few days ago and its helped me understand what we might stand to see in the next few months/years

> Pet conspiracy theory: boom/bust cycles are not only inevitable, but desirable to some extent.

I wouldn’t call this a conspiracy theory at all. The founder of Bridgewater Associates, the largest hedge fund in the world, spent time and money to publish this idea in various forms. I learned about it from here:

https://youtu.be/PHe0bXAIuk0

There’s more to this idea—-the long term debt cycle—-but the premise is exactly what you stated. There are benefits to both the boom and bust phases of the economy.

Ray Dalio does a great video on it too: https://www.youtube.com/watch?v=PHe0bXAIuk0

⬐ riffic

really interesting! thank you for sharing.

Classic: How The Economic Machine Works by Ray Dalio https://www.youtube.com/watch?v=PHe0bXAIuk0

Ray Dalio explains it here https://youtu.be/PHe0bXAIuk0

That’s the gist of capitalism and why we have boom and bust cycles (in the short and long).

Ray Dalios series on the topic of capitalism being funded by debt is quite approachable.

https://youtu.be/PHe0bXAIuk0

Whenever I want to try and understand what may be happening in the economy, I rewatch[1] Ray Dalio’s 2013 video on how the economic machine works.

Bits about a “recession” come up around the 12-18min mark with relevant info beyond.

That said, I don’t know enough to map/equate these simple types of economic explanation with current actual state.

[1] https://youtu.be/PHe0bXAIuk0

Half in 30 years? That’s pretty good! Ethereum fell by that much in a couple weeks. On the way up in a bull market it’s all roses, but in a bear market, these things can crash hard.

Money losing value gradually — Demurrage — makes people actually spend money rather than hoard it. If you want the money to earn interest, you will have to take some risk. Invest in some assets. Usually, stocks or real estate or (finally thanks to the JOBS act) new startups.

I don’t know why people have “fat bank accounts”. Money isn’t meant to be stored. That’s a racket by the banks, along with the idea that you have to buy a home instead of renting. If you can rent and buy other assets that you understand better than real estate, then do that.

This is not magic .. money has to come from somewhere. It usually comes from banks themselves — who lend it to people and businesses who believe that they can pay back MORE money ! The only way everyone can pay back more money than is in existence is if the money supply is increased in the meantime. So inflation happens. The only alternative is having lots of people default and restructure their loans to owe less. This is what Ray Dalio says can be “a beautiful deleveraging”. I don’t buy it…

Learn how it all works:

https://m.youtube.com/watch?v=PHe0bXAIuk0

⬐ manwe150

Most of that sounds right, but the money to pay it back is not a zero-sum game. It can also comes from increased velocity, quantitative easing, the net present value utility function, or by temporarily exchanging it for other asset classes (eg building real estate is a form of increase to the money supply), and probably other sources too

⬐ chii

> he only way everyone can pay back more money than is in existence is if the money supply is increased in the meantime. So inflation happens.

or the lent money is used to produce more goods and services, which the increased money supply would represent (otherwise, you'd get deflation, which discourages spending, and spiral downwards towards depression).

The Fed can buy mortgage backed securities like they have done since they've started quantitative easing. The Fed has purchased Apple bonds. This is in addition to US Treasuries.

My original comment was a mechanics related comment in which liquidity (credit + cash) pushes up asset prices and not rates (although there's high correlation especially in the past 20 years in the US).

This is based on my understanding of Ray Dalio. https://www.youtube.com/watch?v=PHe0bXAIuk0

⬐ atq2119

The volume of mortgage backed securities is based on the volume of loans that people take. At higher interest rates, people take out fewer and smaller loans. The Fed buying up more MBS would put downwards pressure on interest rates, which would be diametrically opposed to their goal (in your scenario) of maintaining high interest rates.

There is a correlation between liquidity and rates, but it's an inverse correlation. That's Open Market Operations 101.

Besides, if your macroeconomic goal is to reduce inflation (which is the reason for raising interest rates in the first place), one subgoal should be to reduce the volume of loans that are being issued. After all, bank-issued loans are new money, which adds to demand, which helps prop up inflation. That's Monetarism 101.

⬐ abirch

Our disagreement appears to be this. You believe that zero interest rates lead to bubbles. I believe that excess liquidity is responsible for bubbles. They frequently both happen together because that's how the Fed tries to stimulate growth and spending.

My example of the Fed with high interest rates and a lot of QE was a way to see where our disagreement would appear. It's similar to the great recession where there were interest rates lower than they are now, but because the private sector wasn't extending credit (less Cash + Credit); there didn't appear to be any asset bubbles.

The volume of mortgage backed securities is based on who can and want to get loans. During the great recession it was hard to qualify for a mortgage even though many people wanted to do so.

⬐ atq2119

I appreciate you trying to get to a shared understanding. I don't have too much time, so just the short version:

> The volume of mortgage backed securities is based on who can and want to get loans. During the great recession it was hard to qualify for a mortgage even though many people wanted to do so.

"Want" is a difficult word. I want a private island, but I can't afford one. So my contribution to effective demand for private islands is zero. In the same sense, I don't think the effective demand for mortgages was particularly high during the great recession. But anyway, we agree on the observation that low interest rates and low mortgage volumes can go hand-in-hand.

One point where I think we differ is the direction of causalities in central bank behavior. My point is that central bank QE causes low interest rates (but low interest rates don't necessarily cause QE). The upshot is that while "low interest rate policy, no QE policy" is possible, "high interest rate policy + QE policy" is not possible. The two policies would be in logical conflict with each other.

I found this 30 min summary by Ray Dalio really helpful. He breaks down how an economy works in a clear and concise way. Stupid simple like me. :)

https://youtu.be/PHe0bXAIuk0

I also found this recent interview with him had a number of interesting angles on the state of things in the US/world as a whole.

https://www.theinvestorspodcast.com/episodes/the-changing-wo...

Would definitely love to hear counter points to these to continue improving my thinking.

⬐ yourapostasy

Dalio's broad strokes thesis that US will decline and China will take over is right iff there is sufficient trust in the PRC's monetary, judicial, and fiscal infrastructures. USD took over from the pound sterling not just because the UK was exhausted post-WW2, but more that major global market participants trusted US institutions from US soft power projection, and were comfortable transacting in USD under Bretton Woods.

For Dalio's thesis to bear out, he needs the PRC to convince major global market participants and other nations that a PRC-chartered, RMB-led Bretton Woods 2 (or equivalent, because history rhymes) makes more sense to follow than the current status quo. The challenge is the PRC has a significant soft power projection PR image issue on its hands at the moment with a lot of perceived bellicosity by not just its regional neighbors, but increasingly around the world.

The US during its post-war ascent was significantly involved in many domestic political knife fights in other nations, outright regime changes, or military engagement that are interpreted as bellicose by some standards: Greece, Italy, Albania, Syria, Burma, Egypt, Iran, Guatemala, Indonesia, Korea, Vietnam, Cuba, Congo-Leopoldville, Laos, Dominican Republic, Brazil, Iraq, Cambodia, Chile, Bolivia, Ethiopia, Angola, East Timor, Argentina, Afghanistan, Poland, Chad, Nicaragua, Grenada, Panama, Haiti, Zaire, Yugoslavia, Palestine-Israel, Libya, Venezuela.

What is curious to me is the USSR was similarly involved, but everyone decided to trust the USD and not the RUB. I have my theories about why that happened, but to the current topic, for various reasons the PRC is not quite so extensively involved in other nations' affairs, yet their soft power image is not sufficiently strong enough to mount a credible replacement to the USD.

I think part of the discrepancy between currencies and nation state dominance is acknowledgement by market participants that China's debt-to-GDP ratio is more than twice as much as the US ratio. As an investor, I also have deep reservations over the long-term with how China organizes its public financing from land sales (I think they're vastly underpricing the sales).

Dalio makes a compelling case, but hand waves away the above issues with "China will grow out of these temporary nitpicks". I suspect Jiping's administration played China's hand too soon; if China had stuck to its mercantilist knitting for another 2-3 decades, I believe it would have made a compelling and persuasive nation state for others to follow at the end of that period with no bellicosity involved. As it stands, I suspect the hand was played too soon because their runways of demographics, energy-debt, and food production are colliding in undesirable ways they're trying to fix by externalizing the costs.

⬐ luckyluke88

@yourapostasy thanks for such a detailed and thoughtful reply. Can you recommend any sources for further reading?

⬐ yourapostasy

Rise to Globalism by Stephen Ambrose and Doug Brinkley is an adequate precis of US ascent to global power, which IMHO contains the seeds of its demise.

The Battle for the Soul of Capitalism, The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns by John Bogle is the economic/fiscal/investing perspective I align with at the "non-billionaire" level.

China analyses is fluid at this time as you can imagine. Stay in touch with the usual The Economist, Bloomberg, Foreign Affairs, Parameters, and similar sources. IMO China's ascent and America's decline are both to a large degree psychogenic at this juncture, and a catalyzing condition to commit a path hasn't been developed yet.

eande's suggestion is good. If you find Dalio's theses persuasive, then I recommend you read his other three books to understand the quant angle he is coming from. You have to understand that as a billionaire, he can afford to be as much as a generation or even two off of his projections, and he'd still shrug that off. We don't have such luxury, so you have to be more discerning on his projected timelines, the numbers behind them, and the global market context it all takes place within.

⬐ eande

Read Ray Dalio’s just recently release 576 page book “ Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail” and you will get a far deeper understanding how he comes to that conclusion. I personally thought it is an incredible well researched book with lots of analysis including historical perspectives. Worth the read to understand the big cycles.

How The Economic Machine Works by Ray Dalio comes to mind. It's 31 minutes long and provides a great high-level overview of basic economic principles.

https://www.youtube.com/watch?v=PHe0bXAIuk0&t=3s

⬐ Jugurtha

This was my go-to video to put me to sleep, but it has sound effects and I found other videos. The two others are Clayton Christensen's talk at Google, and John Danaher's appearance on the Lex Fridman podcast. These two are just amazing as the dynamic range of everyone's voice is so narrow. They don't have ups and downs. Their voice is rather monotonic and soothing. I'm asleep in less than 5 minutes. I know because I remember the topic I slept to, and diff it with the topic I haven't listened to.

I also listen to old tool restauration videos/CNC/industrial sounds as they put me to sleep as fast if I haven't booked a hotel room on the first floor of a hotel that gives to a busy city street at peak time, or at a specific place that overlooks a mechanic shop with pneumatic tools during work hours. I can't control traffic or people's work hours, so these videos are the closest I got to reproducible, predictable, on-demand sleep.

⬐ jorgesborges

You might like this channel called Nomadic Ambience: https://www.youtube.com/channel/UCqRTj-Nu_8to3jIBlXptOtA

⬐ Jugurtha

Thank you, jorgesborges. I will try it.

When used for productive things debt is good otherwise it is bad. Growing debt can indicate growing trust and confidence in the future. Growing debt can also indicate over confidence and blindness about the future. Economies have debt cycles: https://youtu.be/PHe0bXAIuk0

Inflation is the economy’s rate of debt forgiveness. Bad when high but good when low but above zero. Without it economies get clogged by debt. A slow rate of debt forgiveness is more economically efficient than bankruptcies or debt jails. Inflation also combats sticky prices by forcing contracts to be regularly renegotiated to supply demand prices. For example wages are hard to adjust down and having inflation do that automatically few % per year is more economically efficient than having to fire workers and replace them.

I don't know. These policies either increase or decrease economic activity. If economy is accelerated too much it tends to create bubbles and then a big crash. Most people think that we're in a huge bubble right now. No one knows if it will pop or if they will just keep propping it up.

This video explains the basic mechanisms pretty well: https://www.youtube.com/watch?v=PHe0bXAIuk0

Yes that's basically how money is created. Money is then destroyed when the debt is repaid. Great video resource about money narrated by Ray Dalio: https://youtu.be/PHe0bXAIuk0

Historically, there have been a wide range of items used in barter and markets. https://en.wikipedia.org/wiki/Currency#Early_currency. Some of those like livestock depreciated in value very quickly since they literally had a lifespan. Others, like rare coins have gone up in value.

In the context of Bitcoin we are talking about the modern world. The major forces in the modern world are Globalization and Technology. Assuming you don't want China to take over the world you need growth. Growth happens when investment and debts are created. Ray Dalio explains it well. https://www.youtube.com/watch?v=PHe0bXAIuk0&ab_channel=Princ... This is why successful countries like the USA target 2-3% inflation. It is theoretically possible to create a country where inflation was -1%, but technological growth, which is very hard to stop would create a deflationary spiral that would bring the economy to a halt.

You're having a difficult time grasping what debt and credit is.

It's not a negative thing, it's a positive thing.

Advanced economies run on credit, not cash and it's a matter of allocating services and resources more efficiently based on need, and of course, being able to plan ahead for outcomes.

Nations that don't have a functioning financial and credit system will not be wealthy, it's just that simple.

Here is a YouTube by Ray Dalio where he explains what credit is, and how it functions in the economy. [1]

[1] https://www.youtube.com/watch?v=PHe0bXAIuk0

⬐ Annatar

Debt is NEVER a positive thing; not even when it's leveraged, not even when it's used to lower one's taxes. All debt is toxic, for as long as one carries debts, one is not free, not to mention that in case of non-liquidity id est inability to service debt, one can easily lose everything. The current economists' debt is good hypothesis will lead to a big reset and a global economic crash.

By the way, you incorrectly assume that I am financially illiterate. I have done more than 100,000 trades with complex financial instruments. Debt is extremely toxic and dangerous.

⬐ jariel

Annatar, you've completely misunderstood the concept of debt and credit, the entire economy runs on it, and unfortunately yes, it's a signal of financial illiteracy on your part.

All businesses and nations carry debt, it's a financial instrument like any other, and it's a very useful thing.

Like all things, it can be misused.

This isn't remotely controversial.

Saying 'debt is toxic and dangerous' is like saying 'roads are toxic because they have cars, which can lead to crashes', it's completely bizarre.

These financial systems are part what enables rich countries to be rich. Nations that don't have the ability to structure are poor, it's that simple.

⬐ Annatar

Economies which run on debt are doomed to crash. Other than paying off that debt, there is no way to prevent the oncoming crash. If you understood how money is created out of thin air because banks are only required to put forward a small fraction of actual cash (which is still a made up number, not actual fiat currency and therefore isn't backed up by anything real) before they give out a loan, and that this effectively enables private institutions to create money out thin air, you would never claim that I am financially illiterate. Please, educate yourself on:

1. how the financial system works;

2. how broken and corrupt it is.

For several decades I worked in the financial industry, in the very core of it; I was there smack dab in the middle of it, working at a certain institution when that institution caused the 2008 crash (that's why I exited stage left, because I am not a crook and disagreed with it). The current debt-based economy is a time-ticking bomb. When it comes to the great reset, it will be the worst recession which the world has ever known.

I usually err towards the side of distrust due to obvious potential conflicts of interest when large institutional investors make public statements but from a lot of his talks and interviews, I've gotten the impression that Ray Dalio is less bad than most. It could be a con that I fell for, but he seems to push against bubbles to make sure the market is priced closer to actual valuation and he tries to educate retail investors some. This is a video[1] he put out about the economy. I think it is the best tldr summary out there and is incredible. It is short and amazing at conveying the principles of the economy. I think his lex fridman interview was good as well [2].

[1] https://m.youtube.com/watch?v=PHe0bXAIuk0 [2] https://m.youtube.com/watch?v=M95m2EFb7IQ

I got massively downvoted in my other comment for pointing out that there are boom and bust cycles and that COVID just brought ours closer to one of the larger bust cycles, but in the interest of informing (I wrote that on a phone) I found a link which explains it much better than I could[0].

I highly recommend taking 30 minutes to watch it, the person speaking is a well regarded economist.

[0]: https://www.youtube.com/watch?v=PHe0bXAIuk0

⬐ gruez

>I highly recommend taking 30 minutes to watch it, the person speaking is a well regarded economist.

You mean Ray Dalio? Wikipedia says he's a hedge fund manager and has a MBA, but no economics degree.

https://www.youtube.com/watch?v=PHe0bXAIuk0

Here's a video of Ray Dalio explaining inflation-deflation and some other basic economic principles. The process explained in the video is the reason why you can never have a real economy running on Bitcoin.

> if you were given the choice of having two currencies

If having = "to personally own with the hopes that the price goes up", then you pick a currency with limited supply.

If having = "to have it be the currency on which your entire economy runs", you should pick a currency which doesn't have a limited supply.

Dollars were in limited supply too, and they aren't anymore for a very good reason. Here's Ray Dalio trying to summarize some of the relevant economic principles in a video - https://www.youtube.com/watch?v=PHe0bXAIuk0

⬐ nonidentified

To be fair, the question was "with inflation" or "without inflation" (inflation rate of zero). A currency with a limited supply results in deflation as the economy grows. Deflation gives an advantage to savers, the same way inflation gives an advantage to debtors. A currency with an unlimited supply which is supplied at the same pace as economic growth results in zero inflation. And that's nice because then the government isn't giving anybody an artificial advantage. Zero inflation means a level playing field.

⬐ st1x7

> To be fair, the question was "with inflation" or "without inflation" (inflation rate of zero).

As you're pointing out, currencies don't have built-in inflation or deflation, that's why it didn't make sense to answer the exact question that the parent comment was asking.

This sounds very rational but it is mostly wrong.

Stock market like many other assets are driven mostly by credit cycles. Bubbles are created by natural credit cycles. The vast majority of money in the USA isn't hard cash, its credit. And low interest rates and other things can rapidly expand the amount of credit. We are in a period of extremely low interest rates and quantitative easing as well as deficit spending by the government.

Hedge funds like Ray Dalio's track credit and do it to a precision that is widely regard as even better than the federal reserve.

https://www.youtube.com/watch?v=PHe0bXAIuk0

⬐ darawk

Credit cycles are orthogonal to the issue of market efficiency. Credit cycles do not prove that the market is irrational, quite the contrary. The problem with credit cycles is that we are not yet good enough at forecasting exactly when they will end, which is why the market rewards people like Dalio who do the research to try to work that out, but even they are often wrong.

I found this video very informative - an effective eli5 about how the economy works with an emphasis on debt: https://m.youtube.com/watch?v=PHe0bXAIuk0

The economy has been based on credit for a loooong time. I learned about how it works from Ray Dalio’s excellent video on how the economic machine works https://m.youtube.com/watch?v=PHe0bXAIuk0

I think you should read up on Modern Monetary Theory (MMT). There are quite a few people that would argue that printing money is not an issue as long as the debt is held in the same currency you're printing the money with. In theory, you could continue to print enough money to pay off the deficit.

The argument against that is that printing money will cause inflation. While this is true to an extent, it is not always the case. Only about 3% of money in circulation is actually "cash", while the other 97% is credit or a balance in a bank's computer system. Cash + Credit = people's ability to spend. When credit dries up, people aren't able to spend as much. In order to keep the system running the fed can print money to counterbalance the reduction in credit. The amount of money in the system stays the same, it's just that there's more cash and less credit. This is done to ensure that people continue to spend and keep the wheels of the economy turning. Printing money is not always bad.

Also, it's important to understand that while printing adds money to the system, taxes take money out of the system. The taxes the government collects don't actually get recirculated back into the economy. Remember, lots of taxes are paid electronically, which is just a debit on your bank account and a credit on the government's balance sheet. It's not like they're taking your physical dollar bills and spending it again by handing them back out. That money leaves the system and is effectively "destroyed". The government just goes ahead and prints the same amount of money again to balance everything out.

A "balanced budget" means that the government spent or printed the same amount of money that they took out of the system with taxes. While most people would argue this is a good thing, you have to realize that if there's no change in the amount of money in the system, people's wages and wealth effectively remain the same. Inequality can quickly creep in as certain populations of the economy amass more and more wealth. With a balanced budget, it is always a zero-sum game, with a winner and a loser.

By running a deficit (spending more than collecting in taxes), you're raising the amount of money in the system. A rising tide lifts all boats, and so more money in the system means more spending, more jobs, and people earn more. More people can build wealth and live a decent life. Of course, it's a balancing act though. But when done right, it can raise the living standards for all people in a nation.

I'm no MMT expert, but here are some resources I've found to be helpful:

How the economic machine works by Ray Dalio: https://www.youtube.com/watch?v=PHe0bXAIuk0

Soft Currency Economics II (This introduced the idea behind MMT): https://www.amazon.com/gp/product/B009XDGZLI/ref=ppx_yo_dt_b...

Diagrams & Dollars: Modern Money Illustrated: https://www.amazon.com/gp/product/B00HUF6POI/ref=ppx_yo_dt_b...

⬐ Lammy

> A rising tide lifts all boats, and so more money in the system means more spending, more jobs, and people earn more.

I'm sure those trillions we printed will trickle down to me any day now.

⬐ mijkal

I found this site to be a great primer on MMT.

https://modernmoneybasics.com

⬐ positr0n

> The taxes the government collects don't actually get recirculated back into the economy.

I don't understand what you mean by this. Sure a small percentage of taxes go towards expenses in foreign countries or to foreign companies. But social security? Medicare/Medicaid? All those defense contractors? The roughly 2 million federal government employees? All those expenses are going straight back into the US economy are they not?

⬐ karmakaze

This gets posted from time to time on HN but I'd never noticed it. It explains the economy in the a fundamental way.

The economy moves macroscopically through:

  - productivity growth
  - short term debt cycle
  - long term debt cycle

These movements are described through:

  - transactions
  - credit / debt
  - interest rates
  - central government
  - central bank
  - interest rates
  - printing money
  - government bonds

Which then explains:

  - deflation
  - recession
  - deleveraging
  - inflation
  - reflation
  - 'lost decade's

That and more. Not bad for an entertaining 30 minutes with great animations.

⬐ I-M-S

Notice how at 23:08 he asserts that have-nots start resenting the haves at the moment re-distribution starts, whereas in fact the exact opposite is true. Also notice how this is followed by a scaremongering implication re-distribution leads to social disorders and wars.

While I respect Mr. Dalio for creating this high-quality explanation video, viewers should not forget his net worth is $18B USD [1] and his interests are not necessarily aligned with the general public interest.

Taxing the wealthy and ensuring they cannot avoid taxes is a perfectly legitimate way to ensure overall prosperity of a society.

[1] https://www.forbes.com/profile/ray-dalio/#696b597e663a

Not printing money could be far worse.

Check out the Ray Dalio video on how QE is used for stability. https://www.youtube.com/watch?v=PHe0bXAIuk0

I would go through these three videos : - Ray Dalio for one view https://youtu.be/PHe0bXAIuk0 - Yanis Varoufakis for another https://youtu.be/zi-dXc0bKUM - Charles Mackay for an ancient, wise and entertaining read : https://youtu.be/FxgRbnh2ouE

⬐ kiliantics

+1 for Varoufakis, he has a very deep understanding of the system, having seen its ugly details very close up in the eurocrisis, and he has an excellent clarity in explaining it all

"All" you have to do is watch "How the economic machine works (in 30 minutes)" by Ray Dalio: https://www.youtube.com/watch?v=PHe0bXAIuk0

Read his insights and watch his interviews. That's a good basic start. Everything more then that: Nobody really knows.

I have read countless of books, but one thing you have to know:

It is a market - period. Something has value just because another person wants to buy it (at a given price). That's basically all there is. If you think that some asset is worth more in 10 years then it is now - buy it.

The "markets" go heavily up and down currently. That's just because different people price in the current health crisis in different ways.

⬐ ipnon

A great follow up in the "New York billionaires explain basics of the economy" curriculum:

William Ackman: Everything You Need to Know About Finance and Investing in Under an Hour | Big Think [0]

Covers the money making, Wall Street side

[0] https://www.youtube.com/watch?v=WEDIj9JBTC8

⬐ manishjhawar

I found this recent interview [0] of his by TED to be quite insightful.

[0] https://www.youtube.com/watch?v=yrxYhv2O3wU

⬐ war1025

I got about halfway through Principles when it came out and eventually gave up on it (had newborn twins at the time).

Was having a slow morning here so your comment led me on an hour and a half of checking out that video and some of his other content.

His videos seem a lot more approachable than the book.

⬐ yamrzou

I wish there was a book (or even video lectures) that goes more in depth, but with the same style as that video.

⬐ edsykes

Not in the same style, but this is the research that the video summary is based upon. https://www.principles.com/big-debt-crises/

It's free

⬐ sideshowb

For a longer term read I'd recommend Hill & Myatt, the Economics Anti Textbook. It's a fair introduction to Economics 101 but at the same time provides more in depth critique than an introductory book usually would, of where Economics 101 fails, and how it tends to get over-applied in policy.

Ha Joon Chang, Economics: the Users Guide and 23 Things They Don't Tell You About Capitalism (don't dismiss it as an anti-capitalist treatise, it's not) are also good, lighter weight (unlike Hill & Myatt no maths) but give an overview of the different schools of economics and what can be drawn from each.

Came here to reply with the same thing. Not sure who is downvoting me but my guess is people who weren't around back in '08 or are significantly out of touch with US economic policy (or general econ policy, that is).

If you've downvoted me then you probably need to watch this: https://www.youtube.com/watch?v=PHe0bXAIuk0.

This is a wet band-aid.

⬐ kmonsen

We really need band-aids now, like in 2008. The problem is not the band-aid now, the problem is that we did not rip it off in the good times but instead spent all the money in irresponsible tax cuts for people that didn't need them.

⬐ fourstar

No. We don't. We need more emphasis on value vs. growth. In what world is WeWork's valuation sustainable.

Also who the hell is downvoting me? LOL. If you downvote, please comment here so we can debate. I'm dying to see you defend the bull market case (even sideways to slightly up which would be best case scenario).

⬐ cinquemb

Alot of people think that CB's should always be on call to cover their bad bets… like a gunman threatening taking a hostage if they dont get the cash grab they expect…

To bad for them, there's collateral damage sometimes… only the strong will survive.

⬐ mercer

I generally try to take comments on their own merits, but I ruthlessly downvote comments that complain about being downvoted.

⬐ fourstar

> Alot of people think that CB's should always be on call to cover their bad bets…

I think more people would probably hope that central banks don't make bad bets anyway.

You know when you hear about Japan being this futuristic society? You go and visit and you feel like they are "ahead" and have things figured out?

Their economy is what our economy is going to look like. A short-medium term down and then long drawn out sideways market. Who knows when a recovery will be.

Good time to refinance.

⬐ cinquemb

> You know when you hear about Japan being this futuristic society? You go and visit and you feel like they are "ahead" and have things figured out?

Was there for a couple weeks in dec '18… kyoto, fujisan, hiroshima, tokyo… I didn't think this at all unless the "ahead" was meant in jest

> Their economy is what our economy is going to look like. A short-medium term down and then long drawn out sideways market. Who knows when a recovery will be.

So people can look forward to a 30 year bear flag? lol

> Good time to refinance.

Yeah, if you aren't already underwater facing no bids when trying to get liquid.

⬐ fourstar

> Was there for a couple weeks in dec '18… kyoto, fujisan, hiroshima, tokyo… I didn't think this at all unless the "ahead" was meant in jest

Tokyo is a hell of a lot more advanced than the bay area (where I grew up).

> So people can look forward to a 30 year bear flag? lol Facetiously, I don't know what you're talking about because you look like someone from /r/wsb, but I'll entertain your comment: the markets are highly manipulated and the fed is going to turn on the money machine to pump them up again.

It's all a bubble. Until you run out things to turn into bubbles.

⬐ kmonsen

I kind of agree with what you said, but not at this time. We need focus on value, but after the corona situation has passed. Right now we need to focus on not letting the whole system collapse.

We don't need to merge two different ways for the financial system to collapse.

This video by Ray Dalio, "How the Economic Machine Works in 30 Minutes" is an excellent primer on understanding the financial system as a whole: https://youtu.be/PHe0bXAIuk0

Ray Dalio - How the Economy Works https://youtu.be/PHe0bXAIuk0

How The Economic Machine Works by Ray Dalio

https://www.youtube.com/watch?v=PHe0bXAIuk0

I don't agree entirely but good signal-to-noise ratio on this content

⬐ cinquemb

"Ray Dalio says 'cash is trash' and advises investors hold a global, diversified portfolio" - Jan 21 2020

Had you have listened to him, you would have just been taken out back, shot, and put in one of wuhans finest crematoriums… better off reading "Statistical Consequences of Fat Tails"[0]

[0] https://arxiv.org/abs/2001.10488

⬐ nabla9

His advise is still sound if you are an investor and not speculator.

The part of your investment that is in stock should be determined your investment horizon. If you don't need to sell your stock in next 15 years, don't hold cash.

⬐ cinquemb

Yeah, would have played out very well for those top ticking n225 in 1989, esp with every global CB's trying to follow in the footsteps of the BOJ, while everyone is crowding into "diversification" and searching for yield…

I consider investors to be the same as speculators, just speculators who think their beliefs will remain valid over long time frames… cause that's the gamble.

⬐ thekyle

So if you don't believe in investing then what are your plans for retirement? Just to save enough money into a bank account?

⬐ cinquemb

I didn't say I didn't believe in investing, just that I don't consider it any different from speculating, just the time frame typically involved.

⬐ nabla9

investor who does

- dollar cost averaging,

- diversification, small cost investing,

- has sufficiently long time-horizon

has never lost money on 15 year timescale, at least past WWII.

⬐ cinquemb

Even assuming that's true, one can't say the sort of risk and investor took on 15 year look-backs since WWII has been evenly distributed to get some sort of acceptable return, nor can one say that this will continue hold true for the next 15 years. You may believe it hold true though, and many do… but very few will do their homework on the risks to their "diversification" and their own changing liquidity constraints that will occur over the "sufficiently long time-horizon"

⬐ nabla9

> assuming that's true,

Don't assume. You can calculate it in spreadsheet.

> You may believe it hold true though,

In the long run we are all dead. We don't need to believe they hold true. Certainty is not part of this world. Because you never know is just rhetorical argument. Quantifying risk and going on that is good enough.

⬐ cinquemb

>Quantifying risk and going on that is good enough.

Because most people who are blindly buying indexes around the world thinking they are diversified and DCA are certainly doing that…

⬐ nabla9

That's not bad intro, but it's very rudimentary. It has necessary errors of omission. It really don't teach teach how economy works

Btw. his site https://www.economicprinciples.org/ has good reading if you scroll down below the video.

Debt is not dumb. Managing your debt in a bad way is dumb.

You may want to see the following illustration by Ray Dalio about how debt complements the economy:

https://www.youtube.com/watch?v=PHe0bXAIuk0

the capital consists of pre-existing capital, and newly created capital from debt (from a bank). This is literally how money is created (vs direct printing from the Feds).

And it does guarantee recession and expansion, as explained here by ray dalio https://www.youtube.com/watch?v=PHe0bXAIuk0

Just a +1 comment, but thanks for sharing this, it’s very much worth reading, the foreword and overview is very much written in layman language. I might try and dig into the rest of material as well.

For an even simpler but informative intro to debt cycles check out this video by Ray Dalio, it’s the best layperson explanation of debt I’ve ever seen: https://youtu.be/PHe0bXAIuk0

Learn how to make good coffee - Here is for example how to make a great cup of coffee using an Aeropress. https://www.youtube.com/watch?v=pmjPjZZRhNQ&t=252s

Learn the basics of economics - https://www.youtube.com/watch?v=PHe0bXAIuk0

Learn how to journal.

Learn the basics of meditation.

Learn how to learn stuff using flash cards - https://www.youtube.com/watch?v=mzCEJVtED0U - I used this method to learn Finnish (https://mansour.blog/how-to-learn-any-human-language-the-sto...)

Learn how to make good food - making good (amazing) food is surprisingly easy

⬐ Jeff_Brown

I wish I had learned -- in fact I wish everybody learned -- labor economics before going to college. That we expect kids to make such a financially momentous decision without having any idea what they're doing is absolutely nuts.

(Maybe read a microeconomics textbook first; labor economics is a specialization of that.)

⬐ ahmaman

Couldn't agree more! It's amazing how people can research the best gadget for days but when it comes to taking a mortgage its out of a sudden "I don't have time to research this"

A long time, if they want.

They can also print money, the second lever at their disposal.

There's a fascinating video about this, from Ray Dalio. Give it a look, it's pretty interesting.

https://www.youtube.com/watch?v=PHe0bXAIuk0

⬐ OscarCunningham

Printing money and lowering intrest rates are the same lever. When they lower interest rates more people sell bonds. The Fed buys those bonds with printed money. When the Fed prints money they then buy something with it. When they buy bonds it lowers interest rates. They sometimes buy shares but that has the same effect.

I was talking about the two levers the Fed has to guide the economy at work - Printing Money and Lowering interest rates (as described by Ray Dalio https://youtu.be/PHe0bXAIuk0). My coworker starry eyed, looked at me and said, "What about Quantitative Easing?". I responded that is printing money. I think the issue is, these concepts are given difficult sounding names, so people do not question their ethics. I'm not saying they are not needed - in a credit based economy it seems they are absolutely necessary, but perhaps they could be implemented in a way that doesn't so favor the rich.

⬐ michalu

Except that "Quantitative Easing" is NOT "printing money"... it's just media who dubbed it "printing money" as it is a more clickbaity term that works better for driving traffic to the advertisement infested pages.

⬐ grandridge

It is exactly printing money, just the amounts are so large they just skip the paper and ink

⬐ geggam

And it's easier to move around, for a fee.

Think of this business opportunity.

Start a company where you imagine wealth into existence then loan it to others. Then you setup partner systems where you charge folks who use that wealth. A charge for each transaction.

Zero overhead with a profit layer...

⬐ RhodesianHunter

When you put money into the market, but take bonds (which are a guaranteed future cash flow) out you are injecting liquidity temporarily, effectively trading current cash for more future cash.

It's not the same thing as printing money and spending it and suggesting otherwise is either disingenuous or ignorant.

⬐ 29_29

Quantitative Easing could not exist without creating money. Its literally the Fed creating money to buy bonds to reduce interest rates.

⬐ RhodesianHunter

When you put money into the market, but take bonds (which are a guaranteed future cash flow) out you are injecting liquidity temporarily, effectively trading current cash for more future cash.

It's not the same thing as printing money and spending it and suggesting otherwise is either disingenuous or ignorant.

⬐ 29_29

https://www.investopedia.com/terms/q/quantitative-easing.asp

> Quantitative easing is an unconventional monetary policy in which a central bank purchases government securities or other securities from the market in order to increase the money supply

⬐ jml7c5

Where does the Fed get the funds to purchase those securities?

⬐ None

None

⬐ LegitShady

Just so we're clear, he's not entirely wrong.

When the central bank 'buys' securities, they do so with money they're creating in that purchase. In effect they're dumping new money into wherever they're buying securities from, but the 'dumping' isn't with dump trucks or dropping it from planes.

Now those bonds come due and the money is supposed to leave the system, but until then the velocity of money means there are knock on effects.

⬐ mars4rp

Yes, print money and pay for student loans!

⬐ Fjolsvith

Yes! Because we can postpone that bill to our future tax payers.

⬐ mars4rp

What bill? Printing money is not a bill

⬐ Fjolsvith

The student loans are.

Detailed descriptions of ~50 debt crises that had happened in the past century, both deflationary like the 2008 subprime crisis in the US and much of the world, and inflationary like the 1930s Weimar Republic hyperinflation can be found in Ray Dalio's book "Principles for Navigating Big Debt Crises". The main determinant of whether a debt crisis becomes deflationary vs inflationary is whether the debt is denominated in local currency (and can therefore be managed/socialized via money printing, like QE after 2008, or the Roosevelt's Executive Order 6102 in 1933 with the follow-ups) or in a foreign currency (when the debtor country cannot do so). Only borrow in a currency in which you earn! This applies to governments too.

There's also a good 30 minute video on the topic:

How The Economic Machine Works: https://www.youtube.com/watch?v=PHe0bXAIuk0

⬐ Amezarak

Weimar Germany experienced hyperinflation in the early 20s. The 1930s are when severe deflation and massive unemployment hit, leading to political crisis.

⬐ H8crilA

Right! Sorry.

⬐ littlestymaar

> How The Economic Machine Works: https://www.youtube.com/watch?v=PHe0bXAIuk0

First sentence “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”.

Seriously?

⬐ qubex

As an economist, any suggestion that the economy is simple, mechanistic, or easy to understand horrifies me... and those who perpetrate such views tend to be the ones who cause the most harm by simplifying things down to the point that they are meaningless and drawing vast, general conclusions from basically anecdotes.

⬐ H8crilA

Well, the guy is the most successful hedge fund manager in history, so perhaps he knows what he's talking about, since he was betting on the outcomes of such events for the past 50 years. And of course it's simplified.

⬐ thedudeabides5

@H8crilA how dare you suggest that a traditional finance person (and a successful one at that) have anything useful to say on history or finance.

Didn’t u hear that stripe just raised at $35bn?

Has Ray ever raised at that valuation, no?

Downvote!

⬐ H8crilA

Heh, he has >100B under management, so he indeed raised more. Much more. :)

⬐ airbreather

Given you are a self acknowledged economist, I am aghast that you feel the empirical track record of your ilk entitles you to comment.

⬐ qubex

Yeah... I consider it an error of youth that I’m now stuck with.

Financial/economic history is incredibly important if one wants to invest successfully. Much of the things we see in the markets had happened before, but not necessarily in our lifetimes. For example there were entire decades in the US history when bonds easily outperformed stocks, yet because of the last decade your typical retail investor thinks bonds are for people that don't want good long term gains.

"How The Economic Machine Works" https://youtu.be/PHe0bXAIuk0

⬐ herdrick

It's not just the last decade. Since the mid-1980s the conventional wisdom has been that stocks > bonds for long term gain.

Impossible. Ray Dalio explains the business cycle and why recessions are inevitable with our credit based system https://youtu.be/PHe0bXAIuk0

⬐ streetcat1

Possible.

The system got broken by the 2009 rescue attempts (QE 1,2,3).

We are in a different regime right now (negative interest rates). I would not bet on any recession now or in the future.

I'm not arguing against debt. I understand that debt can grow the economy, increase asset values, increase incomes, etc etc, but debt only helps the long term wealth of a country if it's used toward productive ends. It helps GDP/incomes in the short term if it's spent on consumption, but spending the credit on unproductive investments doesn't increase the amount of debt that people/businesses can service long term. When an economy can no longer service more debt, that's when you see debt crises and contractions begin.

EDIT: Here's a pretty good overview of debt cycles, and when debt helps/doesn't: https://www.youtube.com/watch?v=PHe0bXAIuk0 Or if you have more time to devote to the subject: https://www.amazon.com/Big-Debt-Crises-Ray-Dalio-ebook/dp/B0...

EDIT 2: When I say "stored wealth", I don't mean the amounts in normal peoples' savings accounts, but the productive capital of the country - land, businesses, infrastructure.

⬐ Aloha

There is a huge amount of stored wealth locked up in homes that will be sold in the next 10-15 years from boomers dying or downsizing.

⬐ Retric

Homes are largely proxies for other wealth. Individuals don’t own subway systems or good schools, but access to such things are extremely valuable. Aka, location, location, location. This is why the home prices are so unstable they are propped up by demand for such access not the structures themselves.

Counter intuitively this creates huge downward pressures on property values as boomers move or die off.

⬐ throwaway34241

Debt-financed consumption won't help the long term debt cycle, but increasing consumption seems like it could still be an element of economic growth.

For example investments have two sides the saver (who loans the money) and the borrower for the building, infrastructure, factory, etc. Normally the interest rate can be raised to encourage saving and discourage investment, or lowered to discourage saving and encourage investment.

But what if the interest rate is already low, and companies still don't want to invest? Then you are limited by the amount of credit-worthy investment opportunities and not the savings. You could lower real interest rates to be negative, but do you really want to pursue investments with a negative yield?

In that case, turning some of those excess savings into consumption would help things move along. There already was more than enough savings, so that wasn't limiting investment. And the increased demand will stimulate the need for more buildings, factories, etc, and provide more opportunities for companies to invest (borrow) again.

China has wanted to lower its saving rate somewhat - they've used the government to build out infrastructure and real estate at a tremendous rate, but it's unlikely that they will be able to find enough infrastructure investments (that are actually good investments, with positive returns) to keep going at the same pace forever.

Interest rates are pretty low right now, and companies are accumulating huge cash balances (rather than investing) so the idea for more consumption to increase investment opportunities doesn't seem too crazy. But if such a thing were to be attempted maybe it would be better to use tax policy or other means rather than increasing the debt indefinitely.

https://en.wikipedia.org/wiki/Global_saving_glut

See also this video he did on How the Economic Machine Works: https://www.youtube.com/watch?v=PHe0bXAIuk0

⬐ ericd

Oh yeah, that's an excellent summary. I had seen it mentioned, but had never watched it, thanks!

⬐ ericd

Oh yeah, excellent high level summary. I had seen it mentioned, but had never watched it, thanks!

It is. There's only goods and services in the real world, and at some point people slow down on exchanging them. That's a recession.

"How the Economic Machine Works" https://youtu.be/PHe0bXAIuk0

⬐ megous

There is also demand, and capital, and it's allocated somehow (inflexibly, because people tend to like ownership), and there are governments (agents with systemic effects, almost by definition), and there are various currencies and boundaries in the world, and million other things,... and slowdown in economic activity in any geographic area can come for all kinds of reasons, and it's generally a symptom and not a cause.

Increased (or trying to artificially increase) economic activity (as measured by GDP) is also not good by itself, but only in relation to meaningful demand.

Otherwise, digging and filling holes (like in a war, basically) would be an overally good thing, which it is not.

There's no need to increase spending via a central bank currency manipulation, just because it's lower than before, nor is it the only way to achieve that.

⬐ H8crilA

I'm merely stating that a recession is, by definition, less stuff and services being exchanged between people and institutions. Money is just an abstract concept by which people do such exchanges.

And money printing (lowering interest rates, QE, helicopter money, fiscal stimulus like New Deals or the likes of building the Hoover's Dam) is a generally acknowledged consensus on how to at least try to fix it. That is how to at least try to make people transact more.

That's how every boom phase in the credit cycle worked for the past few centuries, including housing in 2008 (assets go up -> more confidence -> more borrowing -> more spending -> assets go up). Not specific to tech by any measure.

Here's Ray Dalio explaining it (founder Bridgewater, the largest hedge fund; apparently Dalio is busy building his legacy now that he's a billionaire):

https://www.youtube.com/watch?v=PHe0bXAIuk0

No. Most economic activity is driven by consumption (usually future consumption, pulled forward in time via credit).

Only semi-accepted economics, but a boiled down version: https://www.youtube.com/watch?v=PHe0bXAIuk0

In short, if consumption falls, the economy can't help but fall with it. Which is what's commonly called a demographic time bomb. Especially in the US, where our social security systems are funded out of current workers, not by savings.

The only way to escape the trap (hypothetically) would be to invest heavily enough in capital expenses / automation during booming demographic times, implement a consumption-driving basic income funded by that boom, then throw up substantial barriers to prevent that money from trickling out to the rest of the world's economy (as without barriers you'd just be supporting foreign economies). This would look VERY different from business-as-usual as it's a 180 against free trade.

Here is a great short video by Ray Dalio https://youtu.be/PHe0bXAIuk0

I suggest you take a but to watch https://youtu.be/PHe0bXAIuk0.

Economics isn't so simple and only from the perspective of the buyer.

⬐ seibelj

I have seen this video and it's well put together. But how does it advocate for reorganizing the economy to eliminate market principles, which is the entire debate we are having? Great video, but wholly irrelevant to this discussion.

⬐ ddingus

There does not have to be a binary choice here.

Markets do some things very well. They do not do everything well.

The basic idea of self governance is we surrender some choice in order to maximize personal freedom.

Applying market principles everywhere results in people being free to live under a bridge, or in an alleyway...

We can and should very seriously constrain markets, and or eliminate them for some things.

What is left will function much better because more people will be able to participate in a meaningful way.

The left is moving this direction, adding economic reform to it's standard social agenda for these reasons. The party struggle over it is plain to see.

Way too many people are in real economic trouble. Markets are killing them.

⬐ seibelj

The video has nothing to do with anything we are talking about, it is about short and longterm debt cycles. That was my comment.

Markets aren't killing anybody, markets don't hold a gun. They are a tool to efficiently allocate resources via price discovery.

⬐ ddingus

Yes they are.

They are a very poor tool in some use cases and are a great tool in others.

Denying that is literally pulling triggers.

⬐ madez

No, denying that is at most failing to understand some connection.

Attacking others doesn't help you make others understand the problems you are seeing.

⬐ ddingus

None of that is an attack. It is a statement.

I cannot, nor want to own how others take information like that.

Ignorance takes many forms. Willful ignorance tends to be one of the more painful.

Frame it all however you want to. Does not change the brutal impact we are seeing today.

There is absolutely no reason to coddle, sugarcoat these things.

If that is rough? Not my problem. It is our problem, and being brutally honest about it is the right thing to do.

I recently watched Ray Dalio's video on the Economic Machine: https://www.youtube.com/watch?v=PHe0bXAIuk0

he describes the monetary/credit/debit system in the same way, and I do agree the first premise is suspect depending on how you define "closed system".

However, I assume the authors' rebuttal would be that real-world economic systems are not closed system. Not that it makes their claims any more applicable to the real world.

⬐ febeling

I think you're right. The "closed system" is supposed to mean "without regard for the monetary aspects."

Those are where all the interesting stuff happens (like growth, crisis), though ;) But that way the statement makes sense.

This is one of the best videos to understand the economic machine:

https://www.youtube.com/watch?v=PHe0bXAIuk0

This article really goes off the rails, so I'll just respond to the original point described in the first paragraph.

To the question: are coders worth it? The answer in my opinion is yes. Software engineering in general is a type of labor that is conducive to generating large profits.

Building robust software systems has large fixed cost, but once the system is out in the wild it has close to zero marginal cost. The cost of distributing one more app through the app store is pretty low (give or take App store fees). A share of the "profits" will go to the developers, and such developers are highly paid relative to other professions.

If you want to do good with your money: spend it. A high level overview by Ray Dialo really helped me understand the boom/bust cycle and how money flows through the economy [0]. Look at China, for years the economy was growing at almost 10% -- driven by the consumption of the new middle class. Now growth is slowing to about 6% and everyone is freaking out, this is because due to higher personal debts China is reducing it's spending. Your spending is someone else income, and a certain % of income is paid out to workers which results in higher wages.

I'd say smart (saving, investing) and "ethical" (to your personal beliefs) consumption, along w/ charity, is the best way to morally utilize your wealth. Support the arts by going to a show, support teachers by raising funds for school supplies, renovate your home, support a farmers market. Wealth intrinsically is neutral. It's all up to you.

0: https://www.youtube.com/watch?v=PHe0bXAIuk0

That's a big ask. Instead I'll point you to the best video I've ever seen on this subject, by Ray Dalio. It's long, but worth it.

https://www.youtube.com/watch?v=PHe0bXAIuk0

However, the problem is that loans are an extrapolation of 30 years of income. So in a boom portion of the cycle, we over project an unsustainable income but in the bust portion, we under project. There is an inherit recency bias in the loan approval process.

When coupled with an interest rates that are far below the historical median, there is an implication that a buyer can take out more debt than in any other economic conditions.

This is a great resource to understand macroeconomic debt cycles: https://www.youtube.com/watch?v=PHe0bXAIuk0

However in a place like Toronto, I imagine there could be a lots of regional factor that would be more significant than interest rates: - Gentrification - Zoning Restrictions - Increase in Population - Geographic constraints (like bridges, freeways, school districts)

Personally, I suspect you'll do quite well in Toronto but every housing market faces headwinds at some point.

⬐ 01100011

And on the flip side, you can assume some level of inflation which makes that 30 year bet on your income less crazy. Sure, I don't expect to make 200k+ in inflation adjusted dollars for 30 years, but I might make that much after inflation devalues the dollar.

I loved this video by Ray Dalio. Really gives a great macro economic view and explains how he timed 2008.

https://www.youtube.com/watch?v=PHe0bXAIuk0

I find this very useful, every now and then i make it a point to watch his video to remind myself of the macro view on things https://m.youtube.com/watch?v=PHe0bXAIuk0

I don't agree with Ray Dalio on everything, but his take on the business cycle seems useful and solid:

[1] https://www.youtube.com/watch?v=PHe0bXAIuk0

⬐ Bromskloss

Specifically, what is presented here is a Keynesian view, right?

There are many indicators that one could look at, "inverted yield curve" is one, but given it's popularity if it actually flips, it might actually trigger the recession in the behaviour that follows, so you end up needing to predict the predictor. And many indicators can get into "lucky socks" cargo cult territory quickly because they happen to match up events/stats with recessionary time periods.

If you need a general introduction, Dalio provides a nice starter for thinking about it: https://www.youtube.com/watch?v=PHe0bXAIuk0

A interesting proposed measure here based upon fundamentals IMHO to me is consumption investment ratio: http://necsi.edu/research/economics/econuniversal

All I can really say is be very sceptical of anyone who says they know for sure - I'm going mostly off my reading of cycle behaviors with some hand wavy harder measures (but economics is a terrible field and even the rigorously defined measures in the end have poor real-world predictive accuracy.)

Let’s take one vertical that people clearly need: food.

Sure there’s non perishable food. But a lot of the food people eat is perishable. They have to keep buying it.

Who is going to source the food if no one pays money to buy it? How will they pay for the operations to get the food?

Now apply this reasoning to other verticals. In many fields, the investments lead to actual improvements in technology, and increasing automation and productivity.

If everyone sits at home that only works if nothing ever breaks and no one needs improvements and technology. We’d still be using gas lamps if no one built electric stations etc.

About debt you can watch this: https://m.youtube.com/watch?v=PHe0bXAIuk0

⬐ ACow_Adonis

Except, I'm sure grace DID spend money on food.

Additionally, grace's savings, not spending money on things she did not need, increases net savings and decreases the cost of debt for those wishing to access her capital to invest in things they desire.

If grace went further still and didn't just passively SAVE her money, but actively invested it in things that made a positive contribution or spent that money only on things which made her desired world happen while discriminating against goods and businesses that made the world worse, either to fulfill her own desires for a better world or investing in such for others, she'd actively be choosing to use that money to build up capital in areas of the economy and reward sectors that supplied those things, lowering the cost of supply, and potentially creating employment in those sectors.

Either way, there are generally better things to do than consuming for the sake of consuming. And its primarily not about spending or not spending, but choosing where to spend and choosing where to invest, for an economy that keeps everyone employed but produces nothing of value (or actively produces harmful things) is not an economy anyone should be aiming for.

If we are so far down the path that we are advocating spending and consumption merely for the sake of spending and consumption to keep the economy turning over, then surely it would be better by far to advocate conscious directed spending and investment, rather than consumption.

⬐ roma1n

Yes except that it is not black and white, working or not working. There could be a real case made for working less and directing efforts towards technology improvements that result in less environmental damage. To me, it does not make any sense to think in absolutes.

If you haven't seen his video, How the Economic Machine Works, I highly recommend it: https://www.youtube.com/watch?v=PHe0bXAIuk0

Also the way he runs Bridgewater is really interesting. It's structured with the goal to surface the best ideas and figure out which opinions are most likely to be correct. It's an "idea meritocracy" and a culture of radical transparency. Everything is recorded and made available to everyone else in the company. Employees are very candid, brutally honest, even with the CEO (Ray). He says a lot of people churn out in the first year or so, but those that get used to it love it and can't imagine working another way. His Ted Talk goes into quite a bit of detail about how it all works: https://www.youtube.com/watch?v=HXbsVbFAczg

His book Principles lays out the foundation. Excerpt: https://inside.bwater.com/publications/principles_excerpt Videos: https://www.youtube.com/user/Bridgewater

⬐ xapata

It's a little bit cultish.

⬐ adventured

You see that in most things different + good; or something just plain great, even if it's not unusual. Apple, Lego, Ferrari, Zelda. You see it frequently in clothing, from bras to shoes, and in makeup. Lifestyle brands often develop cultish circles around them, as with Harley or Airstream, or Lululemon and Starbucks in the early days. Even in more plain/simple products like Lodge's iron cookware.

Sometimes they go more mainstream culturally like Zelda or Lego. Other times exclusion keeps the cult smaller, as with Ferrari.

It's rare for something to be great without developing a bit of a cult around it.

⬐ gojomo

Nearly everything that successfully coordinates large groups of people has 'cultish' aspects.

The trick is to recognize when such patterns of intense synchronization are beneficial, and when they are abusive.

⬐ AnimalMuppet

And a "cult" around an idea meritocracy means that most of the problems of cults won't happen, because decisions will get made on the merits, rather than on ideology.

⬐ xapata

It's a cult around the idea of meritocracy, which isn't necessarily the same as an actual meritocracy.

It's kind of crazy that, at least in the US, personal finance is not taught so much in grade school. I had to do a lot of reading and research now in my late twenties to figure out the best way to manage the RSUs I get at work and how to plan for a home purchase and retirement. It turns out (surprise) that most financial institutions don't have regular investors' best interest in mind. Instead, they see us as customers with value to siphon out over long periods of time.

Understanding how economies work[1], how financial service companies sell products, theories behind volatility and market forces, and how simple portfolio management can be goes a long way to improving an individuals ability to efficiently self-manage their finances.

1. https://www.youtube.com/watch?v=PHe0bXAIuk0

⬐ kobiguru

The video gives a really good explanation but i loved the book he released freely along with that but maybe I have a preference for that. I am awed at by the knowledge this guy has ... If you haven't already read the book "Principles" by Dalio ( same guy)

You would have to pay for UBI by:

1) Cutting spending elsewhere.

2) Raising taxes. (Or collecting more from a growing economy.)

3) Printing money.

Probably it would be a combination of all 3, but since UBI can offset entitlement cuts it makes sense to me that that's where the government would find a lot of the money. Raising taxes is unpopular and can be counterproductive if done to the extreme, and printing money is inflationary and also counterproductive unless there are other deflationary forces at work. (Which there are currently, I agree with Ray Dalio that printing money makes sense during a deleveraging spiral https://www.youtube.com/watch?v=PHe0bXAIuk0)

⬐ dredmorbius

Also by increased efficiency through reducing the administration costs of means-tested social programmes.

I'm not an advocate of replacing all means-based programmes with UBI, but it should see a significant improvement over many such.

Normal is cycles of bull and bear markets. They all come to an end:

https://www.youtube.com/watch?v=PHe0bXAIuk0

I’m not sure if every bull has to end with a crash. Perhaps it just peters out?

⬐ MichaelDickens

http://www.macrotrends.net/1319/dow-jones-100-year-historica...

From about 1965 to 1982, the market had basically 0% return. There were no big crashes (except for 1973), but the market simply "petered out" for about 20 years. On an inflation-adjusted basis, someone who started investing in 1965 wouldn't have broken even until 1995.

⬐ csours

See also Stagflation: https://en.wikipedia.org/wiki/Stagflation

Ray Dalio gives the best explanation to why the business cycle exists [1]. I wish I could provide a TLDR that does the video justice, but there's just too much great insight in this video to condense it any further (it's only 30 minutes anyways). In my opinion, this should be required viewing for all financially literate adults.

[1] https://www.youtube.com/watch?v=PHe0bXAIuk0

Generally credit (leverage) cycles. There's momentum in people borrowing more, until people are too levered, and then the same in the other direction. You can look up some of what Ray Dalio has to say on Youtube for more on this. (Not his organizational principles - his views on credit)

https://www.youtube.com/watch?v=PHe0bXAIuk0

This is sensationalism at its best and repeats what people have been preaching for years, one big example being Ray Dalio https://www.youtube.com/watch?v=PHe0bXAIuk0. The fact the US market is probably in the late cycle says nothing about how long that could last or about the state anywhere else in the world. Yes the Fed will be raising rates, yes money won't be as cheap but there are still companies making products and making a difference in the economy. There are still good investments to be made in emerging markets, which are less mature in their cycle, and even can be found in the US's more mature part of the cycle. I don't know how many fund managers invest strictly according the the cycle, I'd say 0, but instead use it as a piece of information to help make their decisions and help rationalize valuations, metrics, etc. Regardless, diversify your holdings from just US securities (again something that has been said forever) and if there is a market downturn, it will probably come back up eventually. It is, after all, a cycle.

⬐ metalliqaz

It's not purely an examination of a cycle. They are talking about indicators, especially decoupling of economic dependencies.

For example, they cite that valuation is starting to diverge from corporate earnings, which could indicate a coming correction (and therefore downturn).

⬐ xzel

But that has been happening for years during this cycle, investors willing to pay a premium for future earnings, Tesla, Amazon, the list could go on. On the other side companies with good earnings are still underpriced because people are pricing in other things. I see that as a good thing, people are being rational and not sticking to numbers. If the banks thought they were undervalued they'd be taking huge positions in those securities, not exposing them to the world.

The only really bit in this article was a shitty attempt at explaining the "economic cycle". Saying the "Downturn Is Coming" because we might be a peak was less helpful than explaining what the cycle is, what it means to be at this point and what that might mean to do about it. Saying the "Downturn Is Coming" to me says, "shit guys, sell all your securities right now". It is plain sensationalism.

To reiterate, I don't see much substance in this article and I expect a lot more from someone claiming the "Downturn Is Coming". If anyone can get their hands on a copy of Gloom Boom Doom [1] by Marc Faber and you see what quality analysis looks like of the current economic cycle. I believe his August edition goes into it but I don't have my copies to confirm.

[1] www.gloomboomdoom.com

Some explanations as per Ray Dalio https://www.youtube.com/watch?v=PHe0bXAIuk0

⬐ Fredej

Thank you! I've been looking for this video for quite a while!

It's a fantastic video for explanation for how the economy actually works.

⬐ splintercell

I just want to point out that what it explains relies upon the Keynesian or Saltwater School of Economics. The assumption being "Spending drives the economy", the Chicago, Austrian and other free market schools of economics believe that "Savings drive the economy".

Based on this distinction lies the distinction between the policy proposals advocated by Liberals and Conservatives, Democrats and Republicans. Irrespective of which of the above statements "Savings drive the economy" vs "Spending drives the economy" sounds right to you, it's important for people to understand that this distinction exists on a fundamental level in economics (and in today's political climate, even more important than holding an opinion on which two statements are right, it's important to understand that the difference exists).

⬐ Fredej

Thank you for the clarification.

Does a similar video exist from the "Savings drive the economy" point of view?

⬐ didgeoridoo

Google "Austrian business cycle theory" for lots of material on the idea that boom & bust is caused by over/under-investment as a result of monetary policy distorting the "price of money" by manipulating interest rates. I haven't looked too deeply into whether it's a useful or explanatory theory, but that is what they believe.

⬐ _joel

I'd lookup Hayek, who has a different take on it compared to Keynes

⬐ None

None

⬐ wavefunction

Hayek, Friedman and Keynes provide a good starting point for three main strains of modern economic thought.

While Friedman is often portrayed as a 'synthesis' or mid-point between the philosophies of Keynes or Hayek on a linear plot, I found him to be closer to Hayek philosophically.

⬐ None

None

⬐ owebmaster

Probably not because that never happened.

⬐ didgeoridoo

Where do you think the money for business investments and commercial loans comes from? And do you think that either of these has anything to do with economic growth?

⬐ owebmaster

They ALL comes from governmental mechanism and spending.

⬐ splintercell

I couldn't find a video that well done, but there are videos explaining this stuff. One of this is Austrian Business Cycle Theory where you can look it up.

https://www.youtube.com/watch?v=te-xwqKApAE

But as I said, everybody has an opinion on "savings vs spending" (just look at the responses to my original comment), and it's such a clear classification that at that end of the day you can divide every individual on one or the other side of this debate.

Savings vs Spending is actually more accurately defined under "Say's Law". Whether you believe Say's law to be true or not. Keep in mind, pro-spending side defines Say's law different than pro-savings side (it's like pro-choice vs pro-life).

The economic ideas which fall under "Savings drives the economic growth" are:

Free Market policies, deregulation, privatization, reduced govt spending, (most) Republican/Conservative economic policies, anti-war, lower taxation, global trade, anti-protectionism, "Work and jobs will always exist".

The economic ideas which fall under "Spending drives the economic growth" are:

Increased govt spending (includes war spending), regulated markets, nationalized industries, UBI, Welfare, "machines will do everything one day", higher taxation, (most) Democratic/Liberal economic policies, higher spending on education, universal healthcare, infrastructure spending.

Funniest part about economics is that if you try to look at "evidence" then you'd find both the side being able to present the same events as an evidence of their theory being right. New Deal is simultaneously an example of how govt spending got us out of recession and how it dragged the recession to 10+ years.

⬐ kspaans

If savings are put into banks or investments, is there even a significant difference between saving and spending (for the whole economy)?

⬐ dragonwriter

> If savings are put into banks or investments, is there even a significant difference between saving and spending (for the whole economy)?

There's a difference in the velocity of money in the domestic economy; it’s not fundamentally tied to savings vs. spending, but is correlated to it.

⬐ RobertoG

The idea that banks lend savings is wrong.

A bank is not constrained by savings to lean. When a bank lean money is creating that money as a liability for the borrower and a asset for itself.

⬐ stinkytaco

In my opinion "spending vs. savings" is not the best way to put it. It would be better phrased as "debt vs. savings", or maybe even "growth vs. stability". I don't think even an Austrian School economist would argue that spending doesn't drive an economy -- that's what an economy is -- but rather that spending driven by debt is problematic. The argument is that more debt in an economy creates inflation by definition and destabilizes the market. They will cite countries that have less debt (among businesses and individuals) tend to have more stable economies and higher exports. Of course, this is partially because they are selling to countries with higher debt, so I don't think it's as simple as either.

EDIT: Also important to point out that Austrian school economics are against manipulation of monetary policy. They argue that interest rates, credit and savings ought to be driven by market factors rather than the government. It's not so much "debt is bad", but rather "artificially driving up debt by manipulating monetary policy is bad".

⬐ padobson

It's more like investment vs. consumption.

Keynesians would say the government should employ policies to increase overall consumption in the economy (aggregate demand).

Austians would say government shouldn't do either, but rather allow the free market to find the correct balance between consumption and investment. They are particularly against monetary policy because it increases overall investment in an economy (aggregate supply). The problem is that artificially high rates of investment inevitably lead to businesses offering goods and services that cannot be sold profitably (malinvestment).

That's why Austrians believe that artificially low interest rates cause business cycles.

⬐ warrenm

The savings vs spending views were demonstrated beautifully in the 80s and 90s with the Asian crash: east Asian nations, as a whole, are savers, whereas western nations, as a whole, are spenders.

But due to international demand - especially on Japanese production) - in the 80s and early 90s, those nations didn't spend on infrastructural improvements (factories running at 95-100% capacity (sometimes bursting even higher), so when they inevitably had to spend on capital improvement (expansion, new tooling, etc), they had to take production lines offline, which led to production drops, which led to their economy crashing.

"Spend" and "save" (where "save" is a mix of capital investment and so-call "rainy day funds", and "spend" is consumerism) are far too often viewed as independent factors, when they rely on each other being in balance to keep the economy working well.

When an economy spends everything it has (or more - which happens with credit that is too easy to come by), and forgets to plan ahead, it crashes in predictable cycles.

When an economy saves "too much", it never grows (or crashes due to having too much capital investment and not enough demand).

The US' coming out of the Great Depression - largely due to WWII production - was a giant case study on this: factories, production lines, and employable people were massively under utilized, so when demand was created (by gearing up for war), all those people and production factors were "available" to be used. In other words, they had been "saved" (from the economy's point of view) for a decade instead of "spent" (again, from the economy's point of view).

This is part of why there is a "healthy unemployment" value that economists toss around ... generally in the range of 4-6%. Those "saved" resources (human capital, in this case) are available to be "spent" when needed.

If you run at an unemployment level (regardless of whether that "employment" is production capacity, personnel, funding, etc), that is too low OR too high, you run into boom-bust cycles.

That's what central banks try to regulate (albeit not very well, when viewed in the long term).

⬐ stinkytaco

I think this argument ignores other large factors in both of those cycles, namely demographics. Japan went into a demographic spiral with an aging workforce and not enough labor capacity to replace them. Decreased demand, as well as the factors you discuss, made outsourcing more appealing. The opposite is true post WWII. There was heavy investment in production infrastructure due to the war, but we're also looking at one of the few times in human history where labor was more in demand than capital. Add to this the rapid advance in technology which allowed goods -- and labor -- to spread more widely, or to even eliminate human labor, and you have a complicated soup of problems.

I don't think either the Keynesians or the Austrians can really claim a victory in those examples because external factors played a large role.

⬐ monksy

Wouldn't a low unemployment level be good as that the workers are currently developing/using their skills? Wouldn't that be a positive net effect on society as that there are less individuals who need social services and causing crime due to boredom?

⬐ warrenm

It's "good" in that fewer societal services may be needed.

It's "bad" because there's no buffer to absorb increase in demand of production and service creation

⬐ RobertoG

On society maybe, but lower unemployment creates competition for labour and that create more profits going to labour instead of capital.

⬐ pjc50

> This is part of why there is a "healthy unemployment" value that economists toss around ... generally in the range of 4-6%. Those "saved" resources (human capital, in this case) are available to be "spent" when needed.

> If you run at an unemployment level (regardless of whether that "employment" is production capacity, personnel, funding, etc), that is too low OR too high, you run into boom-bust cycles.

I don't think this is a good summary of the theory - it's recognised that reaching the limits of capacity causes inflation, but no mainstream economist would refer to unemployment as a form of saving. Labour is a "wasting" good; you either spend a day or waste a day, you can't save up time while unemployed and spend it later.

Economists prefer a minimum level of unemployment because it effectively prevents labour organisation being used to drive up wages.

⬐ warrenm

>you either spend a day or waste a day, you can't save up time while unemployed and spend it later

Except human capital is, from the economy's point of view, like money in your bank account: if you have none to spare, you cannot absorb increases in demand (to personalize it, say you have $100 per month for gasoline - if the price doubles, you can buy half as much for the same money .. you have no cushion to absorb that change).

Just about every economist I've read over the last 20+ years (ranging from the 1700s to now) agrees there, more or less - regardless of the school they adhere to: if you're operating with no margin of error, you experience the booms and busts less well than if you have a margin.

Unemployment is a form of margin in this context. Say there's 100,000 employable people, but 5,000 of them are unemployed. When demand for labor spikes by anything less than 6%, there is an "instant" buffer to bring onboard while new employable labor is "spun-up" (via training, growing old enough to work, etc).

>Economists prefer a minimum level of unemployment because it effectively prevents labour organisation being used to drive up wages.

Pretty sure you have that backwards: the lower the unemployment, the more wages are likely to rise. If your unemployment is too high, wages will fall (or remain stagnant).

⬐ rememberlenny

This is a great presentation. I was going to link this.

⬐ zeep

He says that interests rates can't be lowered when they are at 0%, but they technically could go negative... looks like Denmark has a negative interest rate, I wonder how it's working out for them. (https://en.wikipedia.org/wiki/List_of_countries_by_central_b...)

⬐ scarlac

> I wonder how it's working out for them

Dane here. We're fine. It's not affecting consumers directly. The negative rates are locking at zero or close to zero. Government has talked about intervening if it would go negative, which I would tend to believe. I honestly don't know the exact consequences of what would happen in any case. I feel motivated to buy a new apartment because of the low rates, so I'm guessing it's working as it should. But that's all just anecdotal.

⬐ googletazer

>I feel motivated to buy a new apartment because of the low rates, so I'm guessing it's working as it should. But that's all just anecdotal.

Would that be your first apartment? It seems to me that the programs of low interest rates are motivating the wrong people - people who already have significant assets and can borrow against them to buy another/several properties.

⬐ yellowstuff

The argument against negative interest rates was that people could simply store cash in a vault and get a 0% return, rather than lend it for a negative return. In practice very slightly negative rates seem to work out because storing large amounts of cash in a vault is hard. However, it's probably still right to assume that if interest rates are meaningfully negative for a while everyone will switch to storing cash.

⬐ mikhailfranco

... hence the War on Cash.

They can also convert bank deposits into 'yellowstuff' and put that in a vault, or safe at home. However, the mining inflation rate in 'yellowstuff', plus fees for storage, come to a depreciation of about 1.5%. So if the WoC is successful, and NIRP policies demand less than about -1.5% interest rate, then there has to be a War on Yellowstuff too.

For those who aren't familiar with Ray Dalio, beyond being founder and CEO of the world's largest hedge fund, he is also known for his dramatic views on transparency in the workplace, and his knack for explaining economic principles in simple terms. These two content pieces he created give a window into his mind:

Management principles manifesto https://www.principles.com/#Principles

How the economy works cartoon video https://www.youtube.com/watch?v=PHe0bXAIuk0

⬐ TomDavey

The New Yorker magazine published a great profile of Dalio in 2012:

Mastering the Machine

How Ray Dalio built the world's richest and strangest hedge fund.

http://www.newyorker.com/magazine/2011/07/25/mastering-the-m...

This hour-long interview at a members-only event at the Council on Foreign Relations is also worth watching to get the distinct flavor of the man:

http://www.cfr.org/world/ceo-speaker-series-conversation-ray...

⬐ s3r3nity

I've read a few books that mention Ray's management approach (my fav is "Learn or Die" by Ed Hess) and I find the approach to feedback loops & developing employees fascinating.

Radical transparency, data-driven decisions for both people and company strategy, etc. are all ideals that I think in the long-run would remove biases across a number of different axes, and develop some of the most self-aware talent in the industry.

Qualitative example: a friend of mine who works there came in with the hypothesis that she would be at a disadvantage on a number of different scales due to being a female in a male-dominated industry. However, because Bridgewater is very open about quantitative evaluations, and video-taping any/all meetings (!!), she is able to validate any/all feedback and claims that people have, and make sure that she's also earning what she deserves.

It's an exciting experiment and I'm disappointed to see some turmoil lately, but hopefully they can right the ship again soon.

⬐ caminante

> Radical transparency, data-driven decisions for both people and company strategy, etc. are all ideals that I think ...

I'm skeptical about BA's rosy portrayal of "radical transparency," let alone RT as an ideal.

According to employee accounts, BA has plenty of skeletons and dirty laundry [0] These accounts talk to top secret areas, HR blow back, secret society themes, and selective use of "private" recordings to fit narratives. A good example's the recorded video of Dalio arguing with a female exec who resorts to crying, which would be selectively shown to demo BA's "direct confrontational culture" to new recruits. They stopped showing the surveillance--err, video.

[0] https://www.nytimes.com/2016/07/27/business/dealbook/bridgew...

⬐ s3r3nity

Ah interesting - I had no idea about those skeletons. Thanks for the article!

⬐ mseebach

Is Principles available in a practical (as in, for on the road/commuting reading) format? Kindle, even paperback?

⬐ grepthisab

Absolutely! Even audiobook:

https://principlesbydalio.com/

⬐ mseebach

Uh, nice, thanks. (I should probably have googled that)

⬐ hkmurakami

I've heard from friends there that the directness often only flows in one direction (managers being direct and aggressive to their subordinates), but YMMV.

⬐ kafkaesq

Yeah, that's the exactly rub, as it were, with most "radical transparency" policies like these.

Funny how these things tend to work out in Corporate America.

⬐ simplemath

>Funny how these things tend to work out in Corporate America.

They are like that everywhere.

People who are willing to screw over other people without remorse go far in our world.

⬐ aleeds

The directness flows both ways, however, the aggression is strictly top down. Ray Dalio, etc, yell at people all the time, and are praised for their honesty. This is not something that goes both ways.

⬐ frrp

Thanks. What is your source? Have you worked there?

⬐ dingbat

thats a great distinction. sounds like an institutionalized version of the individual tendency to excuse poor emotional regulation with "it's just who I am, a straight shooter" b.s.

authentic (foolish) straight shooters would have no problem yelling in the upwards direction too

⬐ btreesOfSpring

"People who are brutally honest generally enjoy the brutality more than the honesty." --Richard Needham

⬐ dingbat

well as long as they are honest about enjoying the brutality i guess they are being consistent!

What's interesting is that I've seen the link on HN titled "Hedge Fund Is Building an Algorithmic Model From Its Employees’ Brains", but I didn't click on it.

I found it a bit silly that the WSJ doesn't name the hedge fund in question.. It's like seeing a link on Hacker News that says "This company is redesigning its architecture", and the company is Facebook. Just say "Facebook is redesigning its architecture".

I shared the video about "How the Economic Machine Works" (narrated by Dalio) on Facebook yesterday.. Here's the video:

https://www.youtube.com/watch?v=PHe0bXAIuk0

Anyone creates "money" every time they lend. Banks do a lot of lending, so they're definitely involved. But even opening a bar tab creates "money" (more accurately, "credit").

Here's a great video by famous investor Ray Dalio about this concept: https://www.youtube.com/watch?v=PHe0bXAIuk0

⬐ irln

> Anyone creates "money" every time they lend. Banks do a lot of lending, so they're definitely involved. But even opening a bar tab creates "money" (more accurately, "credit").

I believe that's only partially true. If your definition of money is a piece of paper (e.g. a bar tab), than yes anyone can create money. However, if your definition of money is the U.S. dollar (e.g. paper or electronic versions) than there are only two entities that can create it: the federal reserve via open market operations and banks via lending.

My question to digi_owl was whether he was making a distinction of what limits credit creation from banks. The reserve requirement has very little to do with it.[1][2]

[1] http://www.cnbc.com/id/100880857 [2] http://www.cnbc.com/id/100497710

I appreciate the link to the video, I'll check it out.

⬐ milcron

To expand a bit more, there are many different definitions of money. Here are some measurable ones, roughly defined:

M0 - Currency in Circulation, physical coins and notes in public circulation.

MB - Monetary Base, M0 + physical coins and notes held in bank vaults.

M1 - Money, M0 + checking accounts (excludes bank vaults).

M2 - Money and Close Substitutes, M1 + time deposits (CDs, bonds, etc.)

M3 - Broad Money, M2 + money market funds, repurchase agreements, other wacky shit.

Wikipedia has more detail: https://en.wikipedia.org/wiki/Money_supply

Here's a graph of different monies over time: https://upload.wikimedia.org/wikipedia/en/5/58/MB,_M1_and_M2...

On the other hand, credit is very difficult to measure since people borrow and lend from each other all the time.

Interestingly, M2 is larger now than before the 2008 crash, but money+credit is smaller than it had been.

Ray Dalio has an amazing video explaining the difference between this recession and the others [1]

TL;DW: People are slowly paying down debt/waiting for inflation to kick in

[1]: http://youtu.be/PHe0bXAIuk0

Short advice: get a low-cost physically-replicating ETF covering a large part of the market (e.g. Vanguard) and dollar-cost average. This is the ultra-low-effort average returns approach.

Stock picking advice and understanding the economy:

I really recommend reading all of Warren Buffett's letters to shareholders which can be found on the Berkshire Hathaway website. They are written in a down-to-earth style and offer a panoramic view of investing, from accounting issues to competitive advantages to macroeconomics. You can also see Warren's investing style evolve and him deal with various issues throughout history, from high inflation to the dot-com boom. Warren boils down many issues into easily remembered sayings ("Be greedy when others are fearful and fearful when others are greedy", though the sayings themselves are probably as old as the stock market itself).

Find investments that have moats is one of Warren's guiding rules, i.e. business advantages that are hard to replicate.

Learn about accounting. You don't have to learn everything, but you should know about the things that will affect your valuation of an investment. Pension contributions, stock-option accounting, etc. Come up with your own metrics to compare companies in a sector to find out who is the most efficient etc.

You will have to find an edge, something that most other people don't know, otherwise you'll just follow the crowd. Things that aren't in fashion are great places to find bargains.

Understand how a discounted cash flow (DCF) calculation works. The important part in a DCF from the point of an investor is to look at how sensitive the results are with regard to changes in the input variables (because the risk-free interest rate and size/timing of future cash flows isn't known in advance).

Understand the effect of interest rates on asset prices (see DCF calculation).

Understand the debt cycle. We are at an interesting point in time, coming ever closer to our debt-carrying capacity.

Here is a nice video by Ray Dalio on this topic:

https://www.youtube.com/watch?v=PHe0bXAIuk0

Some economists probably disagree with some things said there, but i think the gist of it is spot on.

Ray Dalio's "How the Economic Machine Works in 30 Minutes" https://www.youtube.com/watch?v=PHe0bXAIuk0 is a worthy 30 minute investment...

Ray Dalio has a 30 minute YouTube video:

https://www.youtube.com/watch?v=PHe0bXAIuk0

This video on economic theory basically says that it's credit that causes booms and busts, and it's especially bad when credit is not used for investments because it inevitably creates a situation in the future where millions of people at once will have less money to spend, thus creating a bust:

https://www.youtube.com/watch?v=PHe0bXAIuk0

⬐ icebraining

Oh, well, if an Youtube video says so, it must be true.

Does it show any evidence for that theory?

⬐ notlefthanded

The video is by Ray Dalio, founder of Bridgewater, and it states that it's just his personal mental framework to understanding the economy; not claiming gospel or anything. Either way, he's kind of a big deal.

⬐ forgetsusername

>and it's especially bad when credit is not used for investments

It doesn't even have to be "not investments", it can be appropriately risky investments that just don't pan out (perhaps even systemically due to a "black swan").

There's inherent variation, ebbs and flow, in the economy that we won't ever be able to smooth. Booms and busts will occur because those on the credit margins always represent "going too far".

⬐ icebraining

It's obvious that there will always be booms and busts; the important question is why they are synchronized, instead of localized, like the dotcom boom and bust mostly was.

You can start here: https://www.youtube.com/watch?v=PHe0bXAIuk0

⬐ econconfusion

While I really like the video, it's not quite what I'm looking for.

I'd be interested in an attempt to take these simple ideas: credit, debt, etc and created a simple model that shows how credit leads to cycles, where I can play with parameters and see exactly what affacts what.

For example, why cycles? Why should credit across multiple people synchronize into cycles? why not just average out? Exactly what assumptions go into this?

⬐ notahacker

Sounds like what you really want is an introductory macroeconomics textbook that will give you an explanation of the standard models mainstream economists use.

But your example - why business cycles occur - is really more of a debate than a generally understood phenomenon. That's part of the reason why they occur. (part of the explanation is straightforward: people are less likely to borrow if they think that problems in the economy might make repayment difficult, and optimism/pessimism about the future tends to be shared by large proportions of the population. But the dynamics aren't universally agreed upon.)

This is a great overview done by Ray Dalio, founder of Bridgewater Associates; one of the world's largest hedge funds.

"Created by Ray Dalio this simple but not simplistic and easy to follow 30 minute, animated video answers the question, "How does the economy really work?" Based on Dalio's practical template for understanding the economy, which he developed over the course of his career, the video breaks down economic concepts like credit, deficits and interest rates, allowing viewers to learn the basic driving forces behind the economy, how economic policies work and why economic cycles occur."

https://www.youtube.com/watch?v=PHe0bXAIuk0

Not strictly related or necessarily unbiased, but Ray Dalio (Bridgwater) provides a concise explanation of the levers that control the economy: https://www.youtube.com/watch?v=PHe0bXAIuk0

Any startup related equity or options won't really be covered by this but here's a great resource on economics:

https://www.youtube.com/watch?v=PHe0bXAIuk0

The startup stuff has been covered quite extensively here in other threads.

⬐ Jugurtha

This is very cool, Simonreed. (voice in the video is Ray Dalio's).

I enjoyed reading "How the Economic Machine Works"[0] and also "Principles"[1]. But something like this is sort of sweet. Thanks,

[0]: http://bit.ly/howtheeconomicmachineworkspdf [PDF] [1]: http://bit.ly/principlesbyraydaliopdf [PDF]

Try this on for size:

How The Economic Machine Works by Ray Dalio

https://www.youtube.com/watch?v=PHe0bXAIuk0

in particular, see the graph of total domestic debt (i.e. credit) to gdp, and how they have short and long term cycles.

There are several levels to what is wrong.

I have dedicated the last 5 years to discovering what is going on so I will try my best to condense it down.

In terms of a 'shorter' business cycle view (less than 10 year perspective) to what is wrong is that we are not in a recession but in a deleverage. We haven't had one of those since WW2 so most people don't know what it is and think it is a recession. A deleverage is a once in a 100 year massive transfer of wealth event. I have put resources on what a deleverage is at the end of this reply.

The long term problem is that the Fed is a private bank. This means that the US Government and American citizens do not control the Fed. Forget the façade that makes them look like a branch of Government, especially the whole Presidential appointment of the Fed Chairman. It is a private bank that gets to print money and sell it to the US Government that American citizens are forced to use. That means that the US Government and American citizens are slaves with no control over their future. Each dollar printed is a debt burden on the American people and a debasement of the current currency value. Essentially think of printing money as a way that the Fed transfers wealth from your pocket into theirs. Furthermore, I believe that the Fed manipulates the economic cycle to create wealth transfer events that they reap the benefits of.

For further information look to the following:

https://www.youtube.com/watch?v=PHe0bXAIuk0

http://www.tullettprebon.com/documents/strategyinsights/tpsi...

www.youtube.com/watch?v=mII9NZ8MMVM‎

http://www.amazon.co.uk/How-Economy-Grows-Why-Crashes/dp/047...

http://www.imdb.com/title/tt1645089/

"How the Economic Machine Works" was a really great explanation of the different ways a government can influence inflation and deflation: http://www.youtube.com/watch?v=PHe0bXAIuk0

⬐ um304

I couldn't get the second rule narrator suggests at the end of the video: "Don't have income rise faster than productivity because you'll eventually become uncompetitive."

Can someone explain it please?

> Why are there high deficits, currently? Oh yeah, social safety net.

Yes, because it's definitely not military and espionage expenditure or subsidies for corporations.

> My point is, these subjects (even TBTF) aren't black and white.

While I agree with you B&W point, I feel like too big to fail is a failure in management of the economy. To let companies become so big as to effect the entire economy so negatively if they fail is disastrous. The government is propping up/keeping afloat monopolies.

In my opinion, The US is at 0% interest rates, is still in a recession, and can't possibly do anything else in regards to inflationary measures (printing money) without the negative affect on it's position as the world reserve currency.

http://youtu.be/PHe0bXAIuk0?t=13m36s <- Notice how the US is on target for a depression according to many economists.

http://www.youtube.com/watch?v=QMHmTyJXcy0&feature=c4-overvi... <- Here's a great talk regarding quantum easing and how unless the government can start more drastic measures, the economy will tank.

I'd like to heard your defense for the status quo, and also how you believe that social safety nets created in the 40's has anything to do with our crises of 2008.

⬐ knowaveragejoe

Actually, expenditures on the social safety net dwarf everything else, including military expenditures.

⬐ caprock

Dalio has also written papers on this and related topics [0]. Originally, there were three separate papers, but it looks like they've been combined in to a new draft. The three main sections:

* How the Economic Machine Works

* Debt Cycles: Leveragings & Deleveragings

* Productivity: Why Countries Succeed & Fail Over the Long Term

[0] http://www.bwater.com/home/research--press/how-the-economic-...

Amazing 30 minute animated explanation of how the economy works.