The Business Cycle Explained

October 2nd, 2008 by Eric Cope

The Mises Institute has a great article explaining the hows and whys of the business cycle. The reader’s digest version is:

  • The business cycle is due to the central banking system perversion of the cost of money
  • Before the central bank, banks loaned and leveraged money at varied risks. These varied risks rarely lined up with other banks. As time progressed, banks would rise and fall asynchronously.
  • The creation of the central bank synchronized the rise and fall of banks causing these massive artificial periods of growth. Once these growths reach an unmanageable amount, there must be a recession to eliminate poor business decisions.
  • Governments reap the political benefits of growth, not recessions. So, they avoid recessions as much as possible. They use the central banks to avoid the inevitable.
  • The problem is that the longer you avoid the recession, the worse it will be. Flash back to the 1930s.
  • We require the government to do something it is designed entirely to avoid – touching the market. That is why we must not allow it to touch the market, even temporarily, because they only make things worse.

Its time we pull our collective heads out of our collective asses and remember what this country was built upon; hard work, not handouts or bailouts.

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