{"id":16848,"date":"2016-01-24T17:43:22","date_gmt":"2016-01-24T22:43:22","guid":{"rendered":"http:\/\/olduvai.ca\/?p=16848"},"modified":"2016-01-24T17:43:50","modified_gmt":"2016-01-24T22:43:50","slug":"davos-dalio-and-a-depression","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=16848","title":{"rendered":"Davos, Dalio, and a Depression?!"},"content":{"rendered":"
\n

Davos, Dalio, and a Depression?!<\/a><\/h3>\n

So, how does a deflationary depression resolve itself?<\/strong><\/p>\n<\/header>\n

\n

When Ray Dalio, founder of the world\u2019s largest hedge fund, Bridgewater Associates, referred to a possible economic depression as he was being interviewed at the World Economic Forum at Davos, it does not mean what most people think it means.<\/p>\n

Most of us think about recessions and depressions in a linear way. That is, a depression is a really, really bad recession featuring even higher levels of unemployment and lower overall levels of economic activity.<\/p>\n

But for Mr. Dalio, recessions are kind of normal, business-cycle related economic events that regularly occur every 5-10 years or so. The economy begins to overheat, the Fed raises rates in response (the removal of the \u201cpunch bowl\u201d), business activity slows perhaps a bit too much in response, and voila! A recession results.<\/p>\n

Depressions on the other hand are secular or long term, occurring much less frequently. That\u2019s because according to Mr. Dalio, it takes a long time (perhaps decades) to accumulate the excess levels of corporate and government debt that end up triggering this type of economic event. A depression is a condition where more debt cannot be added to the system and instead it must be reduced, or as we say, deleveraging must occur. A depression always threatens systemic solvency.<\/p>\n

There are several hallmarks of a systemic deleveraging or depression if you will:<\/p>\n

    \n
  1. Various asset classes begin to be sold (like oil and gas wells today for example)<\/li>\n
  2. As a result of these widespread asset sales, prices decline<\/li>\n
  3. Equity levels decline as a result<\/li>\n
  4. This triggers more selling of assets<\/li>\n
  5. Since there is less worthwhile collateral available credit levels contract<\/li>\n
  6. Overall economic activity declines. In short, there isn\u2019t enough cash flow being generated to service all the accumulated debt. As a result assets have to be sold, bankruptcies become more common.<\/li>\n<\/ol>\n

    …click on the above link to read the rest of the article…<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

    Davos, Dalio, and a Depression?! So, how does a deflationary depression resolve itself? When Ray Dalio, founder of the world\u2019s largest hedge fund, Bridgewater Associates, referred to a possible economic depression as he was being interviewed at the World Economic Forum at Davos, it does not mean what most people think it means. Most of […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[39,11916,175,202,11917,2310,273,11918,7888,4255,889],"class_list":["post-16848","post","type-post","status-publish","format-standard","hentry","category-economics","tag-assets","tag-bill-tilles","tag-credit","tag-deflation","tag-deflationary-depression","tag-depression","tag-equities","tag-len-hyman","tag-ray-dalio","tag-wolfstreet","tag-world-economic-forum"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/16848","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=16848"}],"version-history":[{"count":2,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/16848\/revisions"}],"predecessor-version":[{"id":16850,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/16848\/revisions\/16850"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=16848"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=16848"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=16848"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}