Any two parties can create credit

oktober 04, 2025

Today I John Mauldin is beginning a series of letters on Ray Dalio’s newest book, How Countries Go Broke.

As Ray shows through historical examples, it’s a repeating process that typically takes about 80 years to unfold.

Like me, Ray expects a sovereign debt crisis. Unlike me, he is a little bit more comfortable beginning to put dates around it.

Ray’s “Big Debt Cycle” is a subset of the larger “Big Cycle” of history he described in earlier books, and which I described in two 2023 letters

Part 1

https://www.mauldineconomics.com/frontlinethoughts/the-big-cycle

Part 2

https://www.mauldineconomics.com/frontlinethoughts/the-big-cycle-2

I highly recommend reading How Countries Go Broke. You will learn a lot about debt, central banking, and how the economy works. You’ll learn far more from the book itself than you will from my summary and comments.

Before going further, we need to keep some foundational concepts in mind. The first is the difference between money and credit.

Credit isn’t money. It is a promise to deliver money in the future under defined conditions.

Any two parties can create credit.

It’s easy: You give me something now, I agree to give you money next year. New credit just came into existence. Dalio says this simplicity is why credit tends to be overused and eventually gets out of hand.

The second key point: Credit is naturally cyclical. Dalio explains

“Credit is the primary vehicle for funding spending and it can easily be created. Because one person’s spending is another’s earnings, when there is a lot of credit creation, people spend and earn more, most asset prices go up, and most everyone loves it.

“Credit also creates debt that has to be paid back, which has the opposite effect—i.e., when debts have to be paid back, it creates less spending, lower incomes, and lower asset prices, which people don’t like.

John Mauldin 3 October 2025

https://www.mauldineconomics.com/frontlinethoughts/big-debt-cycles

Ray Dalio apparently stands on the shoulders of nobody.

Ray Dalio’s “Principles for Navigating Big Debt Crises” is the work of a self-taught economist and self-made billionaire.

The first 70 pages of the book, in which the founder of Bridgewater Associates introduces his theory of debt cycles, have no citations. He apparently stands on the shoulders of nobody.

Mr. Dalio’s education came on trading floors, not in classrooms.

“There is nothing,” he writes, “like the pain of being wrong or the pleasure of being right as a global macro investor to provide the practical lessons about economics that are unavailable in textbooks.”

Daniel Rasmussen WSJ 5 January 2023

https://englundmacro.blogspot.com/2023/01/ray-dalio-apparently-stands-on.html

Ray Dalio is the thoughtful, somewhat controversial founder of the world’s largest hedge fund, Bridgewater Associates, which he started in 1975.

“Ray Dalio is really, really wrong.” In that essay he basically endorses Modern Monetary Theory (MMT).

https://englundmacro.blogspot.com/2019/06/ray-dalio-founder-of-bridgewater.html

Banks create money when they lend. They also create money when they buy coffee machines

https://englundmacro.blogspot.com/2021/09/banks-create-money-when-they-lend-they.html

MMTRE. Det fördes länge en debatt om vilket M som skulle vara bäst för att förutse framtiden. Själv har jag tänkt mig att

hushåll och företag har en skattkista där överst finns kassa och bank, längre ner värdepapper, belåningsmöjligheter och fastigheter och längst ner "The Family Silver".

Min plan är att skapa begreppet Monetary Creation and Destruction - MCD, på svenska ungefär

Att skapa och förinta pengar.

https://englundmacro.blogspot.com/2025/05/mmtre.html

Monetary Creation and Destruction - MCD, Att skapa och förinta pengar.

https://englundmacro.blogspot.com/2025/01/monetary-creation-and-destruction-mcd.html

US May Be Resting on a Risky Wealth-Effect Foundation

oktober 06, 2025

https://englundmacro.blogspot.com/2025/10/us-may-be-resting-on-risky-wealth.html

Riksbanken har svikit sitt ansvar - Stabiliteten i det finansiella systemet - Monetary Creation and Destruction del 2

https://englundmacro.blogspot.com/2025/01/riksbanken-har-svikit-sitt-ansvar.html