Balance Deflationary And Inflationary Deleveraging Tools

Formulation

In a deleveraging, balance spending cuts, debt reduction, wealth transfers, and money creation so debt burdens fall without collapse or excessive inflation.

Use When

Use this when judging policy response during a debt-burden crisis.

Do Not Use When

Do not apply it mechanically outside a deleveraging. The principle is about a specific balance-sheet stress regime.

Source Support

Dalio explicitly identifies the four deleveraging channels around 00:19:12-00:19:45 and describes the need to balance deflationary and inflationary forces around 00:25:48-00:28:36.