Ray Dalio: The end is nigh but not that nigh

Great stuff today from Ray Dalio at BS:

The phases of the classic deflationary debt cycle.

Dalio: There’s the early part of the cycle where debt is being used to create productivity incomes and then, it can be serviced well, asset prices go up, everything is great. And then, you come to the bubble phase of the cycle. And in that bubble phase, you’re in a position where everybody extrapolates the past. Because asset goes up, they think its assets are going to continue to rise. And you borrow money and they leverage. And when you are in that phase, when we do the calculations, you can start to see that maybe you won’t be able to sustain that level of debt growth. Then, you come into the third phase of the cycle, which is the top. That’s typically the part of the cycle when central banks start to put on the brakes, tighten monetary policy, and the like. Then, you come into the down leg, and when interest rates hit zero per cent, you come into a depression part of that cycle because monetary policy doesn’t work normally when interest rates hit zero. Then, you have to have quantitative easing and you begin that expansion. And then, you carry that along and you begin the cycle. So, I think the period that we’re in is very similar to the period that we were in the 1930’s. If I may, I’ll explain it. OK.