Ray Dalio is one of the superstars of the hedge fund world, and one of the most successful investors of all time. His investment firm, Bridgewater Associates, is the biggest hedge fund in the world (in terms of the amount of capital under management) and was one of the only high-profile names in the investment world to correctly predict the economic crisis of 2008.
As a result of this, he has become one of the most influential figures in the world of finance, and when he talks, all the important people listen. In 2012, he made the Time 100 list of the most influential people in the world, and made Bloomberg’s top 50 Most Influential people list in 2011 and 2012. He is also one of the richest people in the world, with Forbes magazine listing him as being the 31st richest person in America and the 88th in the world with a net worth of $10 billion as of March 2012.
After correctly predicting the coming economic crisis in 2007, when the market was still booming, he published an essay entitled “How the Economic Machine Works; A Template for Understanding What is Happening Now”, giving his explanation of the economic crisis shortly after it kicked off in 2008.
In 2013, Dalio produced and narrated a 30-minute video called How the Economic Machine Works, which can be viewed above. This expounds his belief, in a very persuasive manner, that the economy is actually a lot simpler than it is often made out to be, comparing it to a machine with a few essential inputs or ‘levers’ that control its performance.
In it, he explains the influence of credit on the economy in terms of short- and long-term debt cycles, and how a certain confluence of these cycles can lead to a deleveraging situation, such as the one we saw in 2008, and compares this with previous examples of this such as the Great Depression in the 1930s, Britain in the 1950s, and Japan in the 1990s. As an explanation of the economy, and in particular the recent crisis, it is very elegant, and all the more persuasive given his timely prediction of the events of 2008.
The full version of this article was originally published on Hedgethink.com, a thought leadership platform for the hedge fund industry. Click here to see their full range of daily content.
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