Ray Dalio understands the macro environment as well as anyone.

While most investment managers were down big during the Great Financial Crisis, Dalio’s fund was up 8.7% in 2008.

Here is how Dalio views our global economy today:

In order to prepare for the future, it’s important to study history and see how things have played out in the past.

In his book, Big Debt Crises, Dalio studied more than 48 debt crises that have occurred throughout history.

Our global economy from a high level is driven by three things:

• Productivity Growth
• The Short-Term Debt Cycle
• The Long-Term Debt Cycle

In the long run, the economy is primarily driven by productivity

In the short run, the economy is primarily driven by credit and debt

According to Dalio, credit is the most important part of the economy and the least understood.

Dalio defines credit as the giving of buying power.

The buying power is given to the borrower in exchange for a promise to pay it back, which is debt.

Credit can be a good thing because we can purchase something today that we otherwise wouldn’t be able to.

It’s especially good when credit is used by individuals and businesses to expand the production of the overall economy.