How The Economic Machine Works

Very good video from Ray Dalio in which he believes that the three main forces that drive most economic activity are:

1) trend line productivity growth,
2) the long-term debt cycle and
3) the short-term debt cycle.

What follows is an explanation of all three of these forces and how, by overlaying the archetypical short-term debt cycle on top of the archetypical long-term debt cycle and overlaying them both on top of the productivity trend line, one can derive a good template for tracking most economic/market movements. While these three forces apply to all countries’ economies, in this study we will look at the U.S. economy over the last 100 years or so as an example to convey the Template.