<p>There is some evidence for debt cycles e.g. see works of <a href="https://books.google.nl/books/about/Stabilizing_an_Unstable_Economy.html?id=66Y13FgCs_wC&amp;source=kp_book_description&amp;redir_esc=y" rel="nofollow noreferrer">Minsky (1987)</a>, <a href="https://www.taylorfrancis.com/books/mono/10.4324/9780429046452/debt-cycles-world-economy-christian-suter" rel="nofollow noreferrer">Suter (1992)</a> or <a href="https://academic.oup.com/cje/article/42/5/1277/4775276?login=true" rel="nofollow noreferrer">Dafermos (2017)</a>. However, there isn't distinction being made between short and long-term debt cycles like in the video. Also economy does follow cycles around its long-term growth path but those are business cycles not debt cycles.</p>
<p>In economics, what the video author calls 'debt cycles' would be considered business cycle, since the author defines these debt cycles as fluctuations around steady growth path of an economy and in economics we call that business cycle (see Blanchard et al Macroeconomics an European Perspective pp 183).</p>
<p>There are some theories, like the theories of above mentioned Minsky, that business cycles are caused by instability created by overleveraging. There is support for such idea in some cases. For example, Great Recession of 2008 or Great Depression of 1929 are claimed to be an example of this as excessive leverage played role in both crises. However, I do not think there is any serious economist who would believe that all business cycles are driven by debt (e.g. oil shocks of 70s, Covid19 or Russo-Ukrainian energy shocks are clearly not driven by debts and would cause severe recessions even in counterfactual world where governments and households are not much leveraged). Furthermore, I do not think most economist would even say that leveraging causes most crises, rather often leverage is correlated with business cycles, but sometimes it can cause recessions.</p>

CC BY-SA 4.0
2022-05-09T21:27:25.763Z
2022-05-09T21:36:30.593Z
2022-05-09T21:36:30.593Z
1muflon1
<p>The BIS has work on this. See <a href="https://www.bis.org/publ/work380.htm" rel="nofollow noreferrer">Drehmann et al (2012): Characterising the financial cycle: don't lose sight of the medium term!</a> They argue that big crises occur when regular short-term business cycle downturns coincide with the downturn of the medium-term financial cycle:</p>
<p><a href="https://i.sstatic.net/J8giY.png" rel="nofollow noreferrer"><img src="https://i.sstatic.net/J8giY.png" alt="enter image description here" /></a></p>

CC BY-SA 4.0
2022-05-10T22:02:45.043Z
That chart is confusing: in particular the orange and green bars do not seem to have a consistent relationship to the blue curve
Henry
CC BY-SA 4.0
2022-05-11T08:06:54.593Z
As the figure legends clearly states, the bars are the result of a turning point analysis, not eyeball econometrics.
jpfeifer
CC BY-SA 4.0
2022-05-11T08:27:21.580Z
If for example an eyeball check says that the 1974 orange bar was not a peak of the financial cycle and was not a peak of the combined cycle while the 1979 orange bar was a peak of both, while then my question is whether the chart is actually demonstrating anything meaningful
Henry
CC BY-SA 4.0
2022-05-11T08:36:00.943Z
I agree. It's not my own paper and I am also not convinced that the formal turning point analysis yields results conforming to intuition. But OP asked about data backing up financial (debt) cycles. The referenced paper is probably the most well-known one in this area with about 800 citations. Whether you buy their findings is a different matter.
jpfeifer
CC BY-SA 4.0
2022-05-10T12:02:12.937Z
2022-05-10T12:02:12.937Z
jpfeifer
<p>Ray dalio in his video &quot;how the economic machine&quot; claims the economy works in cycles. Specifically, he claims there is a short-term and a long-term debt cycle.</p>
<p><a href="https://i.sstatic.net/0ouiE.jpg" rel="nofollow noreferrer"><img src="https://i.sstatic.net/0ouiE.jpg" alt="enter image description here" /></a></p>
<p><a href="https://youtu.be/PHe0bXAIuk0?t=64" rel="nofollow noreferrer">https://youtu.be/PHe0bXAIuk0?t=64</a></p>
<p><strong>Is there any data to support this?</strong> Couldn't find any references in his video.</p>

<macroeconomics><debt>
long term and short term debt cycle
nz_21
# long term and short term debt cycle

(Asked by: username_0 on 2022-05-09)

Ray dalio in his video "how the economic machine" claims the economy works in cycles. Specifically, he claims there is a short-term and a long-term debt cycle.

[![enter image description here](https://i.sstatic.net/0ouiE.jpg)](https://i.sstatic.net/0ouiE.jpg)

<https://youtu.be/PHe0bXAIuk0?t=64>

**Is there any data to support this?** Couldn't find any references in his video.

**Tags:** macroeconomics, debt


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## 2 answers

### Answer by username_1 on 2022-05-09. Score: 1 | Accepted answer

There is some evidence for debt cycles e.g. see works of [Minsky (1987)](https://books.google.nl/books/about/Stabilizing_an_Unstable_Economy.html?id=66Y13FgCs_wC&source=kp_book_description&redir_esc=y), [Suter (1992)](https://www.taylorfrancis.com/books/mono/10.4324/9780429046452/debt-cycles-world-economy-christian-suter) or [Dafermos (2017)](https://academic.oup.com/cje/article/42/5/1277/4775276?login=true). However, there isn't distinction being made between short and long-term debt cycles like in the video. Also economy does follow cycles around its long-term growth path but those are business cycles not debt cycles.

In economics, what the video author calls 'debt cycles' would be considered business cycle, since the author defines these debt cycles as fluctuations around steady growth path of an economy and in economics we call that business cycle (see Blanchard et al Macroeconomics an European Perspective pp 183).

There are some theories, like the theories of above mentioned Minsky, that business cycles are caused by instability created by overleveraging. There is support for such idea in some cases. For example, Great Recession of 2008 or Great Depression of 1929 are claimed to be an example of this as excessive leverage played role in both crises. However, I do not think there is any serious economist who would believe that all business cycles are driven by debt (e.g. oil shocks of 70s, Covid19 or Russo-Ukrainian energy shocks are clearly not driven by debts and would cause severe recessions even in counterfactual world where governments and households are not much leveraged). Furthermore, I do not think most economist would even say that leveraging causes most crises, rather often leverage is correlated with business cycles, but sometimes it can cause recessions.


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### Answer by username_2 on 2022-05-10. Score: 0

The BIS has work on this. See [Drehmann et al (2012): Characterising the financial cycle: don't lose sight of the medium term!](https://www.bis.org/publ/work380.htm) They argue that big crises occur when regular short-term business cycle downturns coincide with the downturn of the medium-term financial cycle:

[![enter image description here](https://i.sstatic.net/J8giY.png)](https://i.sstatic.net/J8giY.png)

> **Comments:**
> **username_3**: That chart is confusing: in particular the orange and green bars do not seem to have a consistent relationship to the blue curve  
> **username_2**: As the figure legends clearly states, the bars are the result of a turning point analysis, not eyeball econometrics.  
> **username_3**: If for example an eyeball check says that the 1974 orange bar was not a peak of the financial cycle and was not a peak of the combined cycle while the 1979 orange bar was a peak of both, while then my question is whether the chart is actually demonstrating anything meaningful  
> **username_2**: I agree. It's not my own paper and I am also not convinced that the formal turning point analysis yields results conforming to intuition. But OP asked about data backing up financial (debt) cycles. The referenced paper is probably the most well-known one in this area with about 800 citations. Whether you buy their findings is a different matter.  

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