Part 3/7:
Dalio draws an analogy between governmental finances and personal or corporate credit management. He suggests that the dynamics of rising debt should be viewed in a similar context, recognizing that while governments have unique tools—like the ability to print money or impose taxes—the fundamental principles of debt are universal. The circulatory system of credit flows to individuals and businesses that, if managed well, can lead to profitability and economic health. However, a toxic imbalance arises when the growth of debt outpaces income, signifying trouble ahead.
The Three Forces at Play
Dalio identifies three critical forces that can lead to a financial crisis, forms of which can be observed repeatedly in history: