Page 114 - Ray Dalio - Principles

that essentially handed over control of their banking system to
the Troika in exchange for the financial support they
desperately needed.

My meeting with Minister de Guindos took place the

morning after the first and most difficult of these negotiations.
With bloodshot eyes but a very alert mind, he patiently and
forthrightly answered all my difficult questions and shared his
thoughts about what reforms Spain should undertake to deal
with their problems. During the next couple of years, over
considerable objections, he and his government pushed these

controversial reforms through. He never got the praise he
deserved, but he didn’t care because his satisfaction came from
seeing the results he produced. To me, that is a hero.

As time passed, the European debtor countries fell into
deeper depressions. This led Mario Draghi, the president of the
European Central Bank, to make the bold decision to buy
bonds in September 2012. This move averted the imminent

debt crisis, saved the euro, and, as it would turn out, made a lot
of money for the ECB. But it failed to immediately stimulate
credit and economic growth in the countries that were in
depression. Inflation, which the ECB was mandated to get to
about 2 percent, was below that target and falling. While the
ECB had offered loans on attractive terms to banks in an
attempt to solve this issue, banks weren’t taking them up on

the offer sufficiently to make a difference. I believed that
things would continue to worsen unless the ECB “printed
money” and pushed it into the system by buying more bonds.
The move toward quantitative easing appeared obvious and
necessary to me, so I visited Draghi and the ECB’s executive

board to share my concerns.
At the meeting, I told them why this approach would not be

inflationary (because it is the level of spending, which is
money plus credit, and not just the amount of money, that
drives spending and inflation). I focused on how the economic
machine works because I felt that if we could agree on that—
most importantly, how buying bonds moves money through

the system—we could agree on its impacts on inflation and
economic growth. In that meeting, and in all such meetings, I
shared our calculations as well as the important cause-effect