Business Cycles Truly Alive

In the last bull market, some financial analysts and economists debunked the existence of traditional business cycles. The basic assumption was that the global economy is spurred by so many positive drivers that a steady, non-inflationary growth path is easily achievable.

Under this ideal scenario, investors believed that recession and bear markets were a thing of the past. I find this incredible especially when we have gone through the depression in Latin America in the 1980s, the Japanese economy bubble in the early 90s and the Asian crisis in 1997. How can we think that business fluctuations have been eliminated?

The truth is business cycle theories applies throughout history, not only in the past but also in the present economic circumstances. We are led into delusion easily when good times are here – America enjoying one of its longest economic expansion, as well as boom time in China, Russia and Middle East.

Arthur Burns said it well:

For over a century, business cycles have run an unceasing round. They have persisted through economic and social changes, they have confounded forecasters without number, belied repeatedly prophecies of a new era of prosperity, and outlived forebodings of chronic depression.

America may be experiencing extreme hardships now because of excesses in the real estate sector, rising delinquencies in payment have spread to the global financial sectors and the real economy but the world will bounce back from this.

Similarly, the commodities market (especially oil) is in an orgy right now, but understanding the theory of business cycle, it is yet another bubble waiting to explode. Only questions are when and what catalyst to spark the mass exodus of funds.

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1 Comment

Filed under Economy, Oil, Properties

One Response to Business Cycles Truly Alive

  1. tom

    The article states the truth of what we are experiencing now and how large institutions are searching for answers to survive hardships experienced by almost everyone.Investors taking hits hurts the most. More volutility short term then some stability later.

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