Part 5/8:
As the supply of debt in the economy exceeds the demand for it, the viability of existing credit and debt instruments diminishes. This results in a vicious circle where either the government can attempt to mitigate the situation by printing money—a process that can lead to inflation—or face the real consequences of an eroding market confidence.
Strategies for Stabilizing Debt Levels
Dalio proposes several strategies to navigate this complex landscape. First and foremost, he emphasizes increasing productivity growth. When an economy grows faster than its debt accumulates, the debt-to-GDP ratio will improve naturally. This necessitates investment in innovation, technology, and education.