With the FOMC’s latest statement on tap (and taking a sharp turn from yesterday’s post) I wanted to shoot out a paper that I flipped through with a good amount of interest lately. It comes to us via Bridgewater (founder Ray Dalio kicks out these papers once every other month or so) and this one caught my attention mainly due to the way it was structured in terms of outlining past deleveraging events and outcomes.
Dalio categorizes several historic deleveragings into three baskets:
1) “ugly deflationary deleveragings” (which occurred before enough money was “printed” and deflationary contractions existed and when nominal interest rates were above nominal growthrates),
2) “beautiful deleveragings” (those in which enough “printing” occurred to balance the deflationary forces of debt reduction and austerity in a manner in which there is positive growth, a falling debt/income ratio and nominal GDP growth above nominal interest rates), and
3) “ugly inflationary deleveragings” (in which the “printing” is large relative to the deflationary forces and nominal growth through monetary inflation and interest rates are in a self-reinforcing upward spiral).
PS – I’m not the owner of this Scribd account (just searched for the doc); let me know if any issues.