📘Detailed introduction to Big Debt Crises

By Ray Dalio

🌟 Editor's Preface

Everyone, today I'd like to introduce another masterpiece by Ray Dalio 📖 — "Big Debt Crises." Honestly, this isn't just any old read. It's a systematic compilation of Dalio's decades of experience in investing and researching financial markets, specifically focusing on "big debt crises."

Hong Kong people should resonate with the term "debt crisis". Whether it is the 1997 Asian financial crisis, the 2008 financial tsunami, or the recent debt problems faced by many countries, they all correspond to the theories in Dalio's book.

After reading this, I think: If you want to understand why the economy will collapse periodically, why the government's money printing has consequences, and why asset bubbles will eventually burst 💣, this book is a must-read!

📖 Book Introduction

Title: Big Debt Crises
Year of publication: 2018

This book was published by Dalio to commemorate the tenth anniversary of the 2008 financial crisis. Its purpose is to help everyone understand the "debt cycle" and "crisis mode".

📌 The book is divided into three parts:

• 🧩Typical Debt Cycle Model : Dalio uses a simple framework to explain how debt crises form and break out
• 📚Three major case studies : The Great Depression (1929), the US financial crisis (2008), and other countries' debt crises
• 🔍 48 historical case studies : From Latin America to Europe, breaking down each one

🧑🏫 What is the "debt cycle"?

Dalio believes that debt is like medicine. A small amount can help people, but too much can cause trouble.

👉 Simply put, the debt cycle is divided into:

• Short-term debt cycle (5–10 years) : general economic ups and downs, like a normal boom and bust
• Long-term debt cycle (50–75 years) : When debt accumulates to such an extent that society can no longer rely on increasing leverage, it eventually bursts, triggering a major crisis.

Hong Kong people’s version: It’s like a company that borrows money crazily to speculate in land and stocks. It seems to be prosperous in the first few years, but in the end its cash flow breaks down → it bursts → it goes bankrupt.

📚 Summary of key points in the book

1️⃣ Typical process of debt crisis

Dalio uses a "template" to explain that almost all major crises follow this pattern:

1. Debt is increasing rapidly : Borrowing a lot, the economy appears to be booming
2. Asset prices rise : both the property and stock markets are rising
3. Excessive leverage ⚖️: Everyone thinks “not borrowing means losing money”
4. Credit crunch : Borrowing costs rise, banks tighten lending
5. Bubble burst : asset prices plummet, debt becomes a burden
6. Deleveraging : Businesses, governments, and households must cut spending, repay debts, and the economy will decline.
7. Restructuring and recovery : Sometimes it relies on printing money, currency devaluation, and debt restructuring to slowly recover

2️⃣ Four ways to deleverage

Dalio particularly emphasized that "deleveraging" is the most critical stage after the crisis, and there are usually four methods:

• Cutting back on expenses ✂️
• Debt default/restructuring🔄
• Wealth transfer (tax increase) 💰
• Printing money (currency devaluation) 💵

The example Hong Kong people are most familiar with is the US's crazy QE (quantitative easing) after 2008, which is to print money to save the market.

3️⃣ Case Studies

• 1929 Great Depression : Stock market bubble → credit collapse → 25% unemployment
• 2008 Financial Crisis : Subprime Mortgage Crisis → Bank Collapse → Global Recession
• European debt crisis : Greece, Spain, and Italy face economic collapse due to sovereign debt

🧑🔬 Author Background: Ray Dalio

• 🎓Founder of Bridgewater Associates , the world's largest hedge fund
• Over $160 billion in assets under management
• Famous for his theory of "macroeconomic cycles"
• His works include "Principles" and "Changing World Order"

Dalio's characteristic is that he does not just write theories, but uses data + charts + practical experience to simplify complex financial logic.

🎯 Editor's Review (Hong Kong Edition)

The editor feels that Hong Kong people will particularly resonate with this book because we live in a city that is extremely dependent on the financial and property markets🏙️.

Takeaways:

• Borrowing isn't a bad thing, but excessive borrowing can lead to problems . The Hong Kong property market is a living example.
• The government printing money to save the market is not a free lunch ; inflation or currency devaluation will occur sooner or later.
• History repeats itself . No country can escape a debt crisis; it's only a matter of time.
• Investors need to be able to distinguish between "illusion of prosperity" and "real growth," otherwise they may easily end up chasing low-priced shell companies.

Hong Kong version uses a metaphor: The debt cycle is like a hot pot 🍲. It’s fun to add ingredients at the beginning, but then the fire boils over and the soup becomes bitter.

🌈 Summary

"Big Debt Crises" is not just a financial book, but a textbook for understanding the economic crisis. Its most important reminder:

• Debt is a double-edged sword . It can drive growth, but it must be paid back eventually.
• Crises follow patterns . History won't be exactly the same, but it will rhyme.
• We must be principled in responding to crises , avoid blind panic, and understand how deleveraging works.

👉 If you want to understand why economies always crash and burn periodically, and how to avoid the worst pitfalls, this book is a must-read! 🔥

📊 Typical Debt Crisis Process Diagram