The Economic Machine

I started to invest on the stock market recently, and I am so overwhelmed by all kinds of information in the due diligence because of not knowing how to interpret them. I feel the necessity to have my own mind model. I come to the idea of using the How the Economic Machine Works by Ray Dalio as my start point because I watched it several years ago as I was still in the university and I was quite impressed by the beautiful fractal structure in that video.

It uses a very easy model consisting of only two parts: transaction and debt, to illustrate the mechanism of the economy system. The whole system is built on top of some subsystems where the subsystems are built on top of their subsystems, and the smallest building stone is a transaction between two people which are referred as buyer and seller.

The debt plays a role of some kind of resource distribution tool. But it has its downsides due to the nature of human being: if it is not used properly to increase the productivity, then it will become a big burden which would eventually destroyed the whole system.

Whether a debt is healthy or not depends on the incoming rate and the interest rate, or in other words, the increasing rate of productivity and the increasing rate of a debt. If taking a debt can bring a higher increasing of productivity, then it is a good debt.

However, knowing how to analyzing the debt taking and the effect of the debt could be a good start to analyze a company. I can image the real world would be more complicated, for example, use what kind of criteria to evaluate the effect of debt? or how can me measure the debt taking for a strategical decision which takes more than several years?