The business cycle is like the cycle of life

The business cycle is like the cycle of life.

It is born.

It learns how to walk. 

It reaches maturity.

It blossoms .

It grows old .

Eventually it must die.

Business cycles tend to follow credit cycles.

When credit is available, people borrow and spend today for things that they might otherwise not purchase until tomorrow.

Your current automobile might be only 3 years old, and in decent condition for another 3 or 4 years, but easy credit tends to encourage the consumer to buy a new car before it is necessary.

On a macro scale, when credit flows, and people spend on future necessities today, business makes profits, hires new employees , spends more on technology, expands facilities and  helps to generate growth.

When credit cycles contract, a new direction is created. Borrowing shrinks, spending contracts, savings go up and debt is reduced. Businesses contract, increase layoffs, and delay spending.

The last major credit shift experienced by the U S economy shifted to an expansion mode in the early 80’s. The Greenspan and Reaganomics agendas saw an expansion of available credit  which grew virtually unchecked until 2006-2007.

We are currently in the early stages of a Credit Contraction Cycle(CCC)

This is not a temporary pause in an ongoing expansion. We have shifted into a new direction.

The duration of this type of cycle typically lasts for an extended number of years and results in bankruptcies, foreclosures and unemployment.

The Great Depression of the 1930’s is usually shown as the standard of CCC economics, but we experienced similar but lesser extreme contractions in the 1960’s and 1970’s, with Nixon’s taking us off the gold standard as a rapid slide into Stagflation.

This is not a “bad recession” as the experts claim, hoping to keep us calm while our economy unravels.

 We are i n a Depression. It is just beginning, and it will feel more difficult because there is an entire generation of Americans who have never experienced bad times.

Savings have increased from 0% to just over 7% in slightly over 1 year, and demand is contracting because there is less money to spend.

The Administration is trying to add demand by spending money at a super record pace, but  cask for clunkers and various stimulus spending sprees are just moving money from one place to another.

 Demand is not being generated, that will only come when new wealth is created and wages and employment increases.

Unfortunately that will take years, a major shift to expending credit once again, and of course a great deal of contracting and suffering in the interim.

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