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How the Economic Machine Works

How the Economic Machine Works

| August 07, 2017

It's the second week of the month, which means we're sharing an article, website, video, etc. from a third-party that we thought you would either find interesting or valuable. This month we have a video created by Ray Dalio, founder of Bridgewater Associates, the world's largest hedge-fund.

Click Here to Watch the Video!

"This simple, but not simplistic, video shows the basic driving forces behind the economy, and explains why economic cycles occur by breaking down concepts such as credit, interest rates, leveraging and deleveraging."

Some incredible people have reviewed this video. Bill Gates said "this knowledge would help everyone as investors and citizens. Watching is a worthwhile 30 minute investment." Paul Volcker, former chairman of the Federal Reserve, said "Ray Dalio's template may be unconventional but it casts a strong light on how the economy actually works."

What we at Odyssey really like about this video is it's ability to help us conceptualize what the economy is, how and why it grows, why the economy moves in cycles, the different types of cycles, and why there are different types of cycles. As you can imagine, understanding these concepts goes a long-way in becoming a better long-term investor.

As an example of one of the concepts the video explains, the Great Recession in 2008 was so extreme in nature because it was a function of the 'long-term debt cycle' reversing course. When this occurs, there are significant changes and adjustments in the economy that have to take place, and these are often very painful. Fortunately a reversal of the long-term debt cycle does not happen frequently, we have seen it occur during the Great Depression starting in 1929 and most recently in 2008.

In contrast, most recessions are significantly more mild, such as the one in the early 2000's. These are a function of the 'short-term debt cycle', which typically reverses course every 5-8 years, which is why we typically have a recession of some kind every 5-8 years.There's so much good information in this video, we hope you watch the whole thing (just 30-minutes) and share your thoughts and questions with us! We may end-up writing a separate blog-post to break-down the concepts explained even further, please let us know if this would interest you. 

Odyssey Wealth Design provides financial planning and wealth management to clients in Orange County, Irvine, Newport Beach and around the country. As always, don't hesitate to reach out with any questions or concerns; and feel free to share this with friends and family or on Social Media!