During the day I came across an interesting Youtube video by Ray Dalio, where he explained in a nutshell how does economics work. I was intrigued to learn the new stuff. Interestingly, we couldn’t learn such amazing lessons during school days. Let’s be happy at least we are able to learn today😄
“My spending is someone else income and someone else spending is my income” is the main concept I learned. Further, Ray explained the concept of credit. Most of the money in today’s economy is credit money, not the actual money. Suppose you earn 10,000 bucks and considering 10% credit so consequently, you have 11,000 bucks to spend. This 11,000 spending is someone else income and again 10% credit result in 12100 bucks and the cycle continues and that’s how so much additional credit money is created.
Everything runs smoothly until you are able to pay your debt. When we are unable to pay the debt that’s when the crisis begins. The government can take 4 measures when such a situation arises:
- Reduce Debt
- Charge higher taxes on the rich
- Lower the interest rate
- Print more money
The first three measures fall under deflationary measures. However, the last one is an inflationary measure. The government needs to wisely balance it out. Ongoing into any of the one extremities lead to the financial crisis.
That’s it for the day 😅