In one of his research papers Ray Dalio explains about the cycle of countries and how they develop and reach certain point where growth weakens:
-In the early stages, people know they are poor and thus have limited resources and savings. The economy has reduced debt because they have no insurance.
-In the subsequent stage, the wealth is increasing, but psychology is still the same. They save, work hard, and maneuver cautiously. But investment and exports increase and their assets, like gold and real estate, expand.
-Now comes the part where they realize that they are actually rich. Their per capita income breaks records. The psychology shifts as the generation is replaced by new people who like to spend and enjoy more. Working hours go down, while expenditures on luxuries goes up.
-In the next phase, the economy gets poorer, but the psychology of people and governments does not budge. Debt to earning ratio increases, incomes are high but spending is even higher, payment and government deficit expands. Infrastructure weakens and productive investments lose steam.
-The bubble of being wealthy bursts and deleveraging and austerity measures come in play. They print more money and lower interest rates to help GDP growth. The previously powerful economies now start competing with developing and emerging economies.
Ray Dalio is an American businessman and founder of Bridgewater Associates. Bridgewater Associates has since attracted many clients including pension funds and is currently (as of January 2012) the largest hedge fund in the world with nearly $120 billion under management.
-In the subsequent stage, the wealth is increasing, but psychology is still the same. They save, work hard, and maneuver cautiously. But investment and exports increase and their assets, like gold and real estate, expand.
-Now comes the part where they realize that they are actually rich. Their per capita income breaks records. The psychology shifts as the generation is replaced by new people who like to spend and enjoy more. Working hours go down, while expenditures on luxuries goes up.
-In the next phase, the economy gets poorer, but the psychology of people and governments does not budge. Debt to earning ratio increases, incomes are high but spending is even higher, payment and government deficit expands. Infrastructure weakens and productive investments lose steam.
-The bubble of being wealthy bursts and deleveraging and austerity measures come in play. They print more money and lower interest rates to help GDP growth. The previously powerful economies now start competing with developing and emerging economies.
Ray Dalio is an American businessman and founder of Bridgewater Associates. Bridgewater Associates has since attracted many clients including pension funds and is currently (as of January 2012) the largest hedge fund in the world with nearly $120 billion under management.
