Real economy and how it works – a lesson in economic theories

cryptocurrencies vs. real economy

Real economy as a definition is the part of the economy that is concerned with actually producing goods and services, as opposed to the part of the economy that is concerned with buying and selling on the financial markets. (source: Financial Times)

While most people focus on the latest movements in cryptocurrencies, the things that really matters to the real economy is often forgotten. But why should we care about things as productivity, debt levels and economic growth as long as we are rich in Bitcoins. It is really different this time…

Well, the problem is that most of the Bitcoin and Cryptocurrency investors and the millennials that are placing all of their money in stocks and real estate weren’t around in previous crises. They make all the traditional mistakes that historically have created all the major financial crises. They become greedy and don’t bother to learn anything from the history. What if we miss out on the opportunities?

No one can predict the future, but with all the bubbles that the last ten years of quantitative easing and low interest rates have created it doesn’t require too much financial knowledge to understand that we are living in the most risky environment ever if we have all our money invested in stocks and/or real estate.

It may seem easy to understand the basic economic theories. The things that affects the real economy, like investments in productive assets that creates employment and hopefully higher wages. We have all the tools that should make it easy to understand how everything is connected. The reality is of course much more complex.

Instead of investing in the real economy, central banks and companies we have created enormous financial bubbles that now are at risk. It will be very interesting to see what happens if the FED now begins its financial tapering and at the same time raises the interest rate…

Below is a really good video from the world’s biggest hedge fund, Bridgewater and its founder Ray Dalio. In this we get all the tools that we need in order to understand the real economy and how it works. Something that seems to be missing from most people nowadays…

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