Hedge fund Bridgewater Associates founder Ray Dalio breaks down debt cycles into 5 phases: (1) the early phase typically lasting 2 years, often described as the Goldilocks period when the economy is neither too hot nor cold; (2) the bubble, lasting 3 years when the economy grows faster than is sustainable; (3) the market top, typically lasting about 12 months; (4) the depression when the country reduces its excess debt for about 3 years; and (5), normalization, taking 3 years or longer, as the economy recovers and returns to normal. Dalio describes 48 big debt crises in the world since 1918, 21 from established economies, which typically borrow in their own currency and respond to debt crises by lowering interest rates and deflating their own currency, and 27 from emerging markets that typically borrow in foreign currencies such as the US dollar and respond by inflating their own currency: Dalio, Big Debt Crises, 2018, Part 3, p.3.
