I don’t think it’s a coincidence that Ray Dalio and I (both market practitioners – one far worse than the other) agree on the statement in the title of this post. I have spent countless hours trying to formulate a better understanding of the monetary and financial system. My thinking is simple. If we can understand how the economic machine works then we can establish a better foundation from which to solve problems and forecast potential problems.
I have previously referred to this as a da Vinci approach to economics. That is, when Leonardo da Vinci was doing some of his most famous anatomical work he had no real care for solving the problems in the human body. Instead, he would famously ask the simplest of questions such as “why does the arm raise the way it does?” And he would then study the anatomy of the human arm by deconstructing the muscles and parts that made it operate a certain way. In doing so, da Vinci established a superior understanding of the way the human system works which led to countless superior methods of solving its problems.
In my view, our understanding of the financial system is still very much in its infancy. And “If we can agree on how it works then so many other things come from that”….
Via CNBC (h/t Value Walk):