These four ways have happened in every deleveraging in modern history. The difference between a recession and a deleveraging is that in the deleveraging, borrowers debt burdens have simply gotten too big and can’t be relieved by lowering interest rates. Now, think about the interest rate on that debt. So, if we can understand transactions, we can understand the whole economy. By Marc Eglon 2018-08-11 No Comments. Oct. 07, 2014 2:19 PM ET 25 Comments. People are just focused on what’s been happening lately, and what’s been happening lately? The central bank doesn’t want too much inflation because it causes problems. If you divide the amounts spent by the quantity sold, you get the price and that’s it, that’s a transaction. Usually spending is cut first, as we just saw people, businesses and even governments tighten their belts and cut their spendings, so that they can pay down their debt. As incomes fall and debt repayments rise, borrowers gets squeezed, no longer credit worthy, credit rise up and borrowers can no longer borrow enough money to make their debt repayments. It helps investors looking for a quick return on investment, but it doesn’t help the workers in an economy as their wages do not increase. 1. productivity growth 2. short term debt cycle 3. long term debt cycle. Former U.S. Treasury Secretary, Larry Summers invited Ray Dalio, founder and chairman of Bridgewater Associates, the world’s largest hedge fund, to discuss Dalio’s unique views on economics. In a recession, lowering interest rates works to stimulate borrowing, however in deleveraging, lowering interest rates doesn’t work because interest rates are already low and soon hits zero percent, so the stimulation ends. This is a very risky time. This increases people’s income, as well as the government’s debt, however it will lower the economy’s total debt burden. Ray Dalio on How The Economic Machine Works: Full Transcript. Now don’t get me wrong, credit isn’t necessarily something bad but just causes cycles. I want to share it with you; I have attached the … The total amount of spending drives the economy. Since my spending is another person’s income, the economy grows every time I or anyone else is more productive. How the Economic Machine Works: “A Transactions-Based Approach” An economy is simply the sum of the transactions that make it up. He is an expert in technology, he has over 5.5 years of design, development and roll-out experience for SEO and SEM. When the amount of spending and income grow faster than the production of goods, prices rise, when prices rise, we call this inflation. With low interest rates, debt repayments are reduced, and borrowing and spending pick up and we see another expansion. So even with the accumulation of lots of debt, rising incomes and asset values, help borrowers remain credit worthy for a long time, but this obviously cannot continue forever, and it doesn’t. The rush to sell assets floods the market at the same time as spending falls. By buying financial assets with this money, it helps drive up asset prices, which makes people more credit worthy, however, this only helps those who own financial assets. And remember, spending drives the economy. Other central banks around the world that could, printed a lot of money too. Lenders usually want to make their money into more money and borrowers usually want to buy something they can afford, like a house or a car, or they want to invest in something like starting a business.Credit can help both lenders and borrowers get what they want. Growth of the transactions and see how credit creates growth needs to grow faster than incomes forcing. 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