The basic economic cycle is divided into four parts: boom, recession, depression, and recovery. There is no absolute, firm definition in today’s environment of exactly what quantifies each aspect of the business cycle. Economists continually increase the complexity of their trade by adding new formulas and statistics in an attempt to describe which part of the cycle we are in. Complexity steers us in the direction of chaos. Simplicity moves us to "order".
Tampering with the business cycle has disastrous consequences. The natural business cycle allows for orderly expansion and contraction. Contraction is designed to be a "cleansing cycle." Entrepreneurs will eliminate waste created from bad business decisions during this period. This is a time of reflection. Do we really need this expense? Did this sales program produce additional profit? The list goes on. However if the cycle is tampered with by delaying this cleansing cycle, the result will be a longer, deeper cleansing cycle. A sustained boom will result in a sustained bust.
Those in control of the creation of money seem to be on a continual quest for the "Holy Grail"- a formula that will eliminate the business cycle and only produce sustained growth. They study Economics and write theses to introduce their perspective of economic prosperity. In the last 100 years, the Great Depression became a popular case study. How can we eliminate another great depression. Economists agree that a depression contains negative growth of the "Gross Domestic Product", high unemployment (10-20%+), and a lower standard of living for most of the population. Those in control of the money supply have experimented with our livelihoods. Interest rates were consistently higher in the 1970’s to fight inflation. For years passbook savings accounts were paid 5% interest. That rate rarely changed. Mortgage rates varied from 7 to 10%. The standard down payment on a conventional loan was 20%. FHA loans required less but not the 0% allowed in recent years. Fixed interest rates were the standard. The gold standard was dismantled in the 70’s. When inflation started rising in the early 80’s, Paul Volcker as Fed Chairman raised interest rates to arrest the boom cycle and force a recession and thus cleanse the waste out of the system. During that time I was a Chief Financial Officer. Our plans for expansion would take into account the cost of money and the expected return on investment (ROI). If the ROI was not substantial we would axe the plan. Only the plans with the greatest potential were implemented. The high rates slowed our growth. Those same rates minimized our mistakes by requiring greater scrutiny of each project before implementation.
Our current central banks around the globe are postponing the cleansing cycle. By providing "easy and cheap" money, they have promoted poor economic decisions throughout the entire global population. The average family has created substantial liabilities including excessive mortgages, credit card debt, and consumer loans. At the same time creditors have successfully eliminated the bankruptcy alternative that eliminates the consumers’ mistakes (a jubilee). Once again, we’ve been bamboozled! At the same time, this easy money policy has fueled inflation. Those that did not fall into the borrowing trap are having their savings eaten away by excessive inflation.
In college, we did not have an economics lab class. A school laboratory was a place where you could experiment with the principles you learned during the lecture class. Physics principles were validated in the lab class. How do you validate economic principles? In the biggest lab of all-the globe. What happens when all of the economists are taught by a prevailing theory? The result is a "cluster of errors". Those in charge continue to operate under assumptions that may be invalid. The gold standard was eliminated since it seemed to restrict growth. Who decided that growth was being restricted? Those in power motivated by greed. Biblically, the gold standard has been used for thousands of years. There was a reason for this. It created a reasonable business cycle without the volatile changes. The Lord God Almighty created the business cycle. Man has decided to tamper with it. The current "cluster of errors" will produce a well-defined view of economic depression in our economics lab. After it is all said and done, we will have a close and personal view of the negative economic impact created by financial derivatives, selective regulation, investment bankers’ greed, and poor lending/borrowing practices.