From the build-up to the bubble peak to the collapse and the subsequent government rescue, all financial crises have “the same basic structure repeating over and over again.”
That is according to Ray Dalio, founder, Co-Chair and Co-CIO of Bridgwater Associates. His latest book, Principles for Navigating Big Debt Crises was just published (free PDF here). (Dalio’s prior MIB appearance is here).
Why are all financial crises so similar? Dalio researched 48 prior crises, finding the same basic steps occurring with startling predictability in each crisis:
- Early cycle
- Bubble / Top
- Depression
- Beautiful deleveraging
- Pushing on a string
- Normalization
Blame human nature for creating what amounts to be a template for future crises. Dalio suggests that policy makers and investors should study history to understand the roadmap for when the next crisis inevitably occurs.
He also shows the parallels between today and 1937 — from an economic, societal and political perspectives. Reminscent of that pore-war era, we see a similar underlying problem where “Capitalism is not working for the majority of Americans.”
His favorite books are here; transcript of our conversation is posted here.
You can stream/download the full conversation, including the podcast extras on iTunes, Bloomberg, Overcast, and Stitcher. Our earlier podcasts can all be found at iTunes, Stitcher, Overcast, and Bloomberg.
Next week, we speak with Scott Adams, creator of Dilbert, and author of How to Fail at Almost Everything and Still Win Big: Kind of the Story of My Life, and most recently of Win Bigly: Persuasion in a World Where Facts Don’t Matter.
