Economics

Credit and the Economy

By October 7, 2013 No Comments

Ray Dalio is the founder of the world’s largest hedge fund, Bridgewater. It is among a vanishingly small minority of hedge funds with a 20-year track record, and has managed to generate strong returns despite huge assets under management. He has released a 30 minute video explaining his vision of “How the Economic Machine Works.”

It’s an interesting and intuitive model of the economy that does a great job of illustrating what a central role credit plays in our economic system. I particularly like how it embraces the axiom of “There Ain’t No Such Thing as A Free Lunch” – credit can be used to buy more things now, but at the expense of being able to buy less things in the future when we have to pay it back.