In this 30 minute video titled ‘How the Economic Machine Works’, Ray Dalio (founder of Bridgewater Associates) clearly and concisely explains how the economy works. By breaking it down into its fundamental concepts and then using real-life examples, he is able to explain it in a way that is understandable to anyone, even those without a background in finance or economics.

I recommend everyone watches this to improve their overall financial literacy. I expect I will be re-watching it frequently to solidify the learning.

My key takeaways / learnings:

• The importance of credit
• What the short-term and long-term debt cycles are
• How spending drives the economy as it increases incomes (which increases spending)
• The debt burden
• The 4-ways to address a deleveraging
  • Cut spending (austerity)
  • Reduce debt
  • Wealth distribution
  • Printing money
• Balancing deflationary and inflationary measures

What impact will this have on me?:

• I am now equipped with a first principles understanding of the economic machine
• I will use this as a foundation to…
  • learn how to identify where we are in both the short-term and long-term debt cycle
  • learn how to determine how this information impacts my life and finances (career, investments, spending etc.)
• Allow me to further build on this knowledge to a point I can articulate the learnings to friends and family

Ray closes the video with 3 Rules of Thumb:

1. Don’t have debt rise faster than income
2. Don’t have income raise faster than productivity
3. Do all you can to increase productivity