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After talking about GDP, Commodities, Real Estate and Bond (first lesson), today we talk about cycles.
are made up of recovery/expansion and contraction/recession. When we speak of "recovery/expansion" we are referring to the growth of GDP caused by the business class and therefore by innovation, according to Schumpeter. It leads to innovation and therefore to competitiveness and competition. Instead "contraction/recession" refers to the flattening of the competitive edge. These cycles depend on relations between states, politics, asset bubbles, taxation, etc
Basically, the economic recovery depends on the productive development which increases sales leading to higher employment and income and, in turn, spending capacity. In these cases there is a lot of demand for raw materials, this leads to economic growth. Over time, however, there is saturation of supply by demand with a consequent increase in prices and inflation. Central banks intervene to limit the bubble, due to the excessive optimism of the masses (leading to economic imbalances). The action to curb demand is the contraction of money which curbs investments, this negatively affects productivity and finances by decreasing profits and employment (spending capacity is reduced). The cycle that had led to expansion, reversed the trend and returned to contraction, is rebalancing.
A recession refers to a period of declining economic activity in which a country's economy experiences a reduction in output, employment, household spending and investment for an extended period of time. Typically, a recession is defined as a decline in GDP for more than 2 consecutive quarters. Recession can be caused by various factors, such as a decrease in demand for goods and services, a reduction in commodity prices or a financial crisis. It can have a significant impact on people's lives, leading to increased unemployment, economic insecurity and poverty.
crisis of 1929 was caused by excessive speculation on the stock exchange, the increase in personal debt and the collapse in agricultural prices, which created growing economic instability. The crash of the New York Stock Exchange on October 24, 1929, known as "Black Thursday", led to a global economic recession that lasted for years until World War II. On that day, major stocks were down 50%.
1987 crisis, also known as Black Monday, was mainly caused by a speculative bubble fueled by a number of factors, including rapidly rising interest rates and soaring stock prices. The crash occurred on October 19, 1987 bringing a significant reduction in the value of the Dow Jones index (this index today measures 30 stocks: IBM, Intel, American Express, Coca Cola, Cisco, JPMorgan, McDonald's, Goldman Sachs, Walt Disney, Microsoft, Dow, J&J, etc).
1997-1998 Asian crisis began in July 1997, when Thailand had to devalue its currency, the baht, after the outflow of foreign investment. This event triggered a series of financial crises in many countries including Indonesia, South Korea and Malaysia. The crisis was mainly caused by the excessive indebtedness of local banks and businesses and by the excess of speculation on the real estate/financial market. This led to an economic recession in many of these countries.
2000-2001 crisis was triggered by the DotCom bubble, the euphoria of technology markets and the sudden growth of Internet companies that swept through the 1990s. Many investors invested in those companies with the hopes of making a profit fast but many of these companies did not have a sustainable business model so they collapsed. Notably, the NASDAQ was the dominant stock market index for technology companies in the mid-1990s. The bubble burst in 2001, when technology stocks began to fall rapidly following the perception that many of these companies had no growth prospects. Furthermore, the September 11, 2001 terrorist attacks in New York caused further repercussions on the global financial markets. The Stock Exchange was closed for about ten days.
2008 crisis was mainly caused by the collapse of the US housing market, with a high number of risky mortgage loans and excessive speculation in this sector. Many loans were made to people with low incomes or bad credit. Financial institutions had concentrated their investments excessively on risky mortgages and related derivative products. The creation of complex and risky financial products has caused disasters, not only in the United States, but around the world, leading to a global financial crisis. This has led to a default of many financial institutions (inability to honor their financial obligations according to established agreements) and a sharp decline in the values of financial assets, which has had a global impact on economic stability. The crisis also continued in the following years, especially in 2011 in Europe where it had a particularly significant impact, given that many economies saw strong repercussions on economic growth and employment. In those years Greece was one of the countries hardest hit by the crisis, with a high public debt. In 2010, a financial bailout by the EU and the IMF was needed to avoid the default of the state. was born in this period.
Any cycle is always governed by the time variable. The oscillations of each (macro) cycle are given by the sum of the minor cycles (in its expansion/contraction phases). There is synchronicity in the maxima and minima: the more the cycles converge in a given point, the more the movement (trend) will be accentuated (the point does not have to be precise to the millimeter or necessarily fall on a given day, we are talking about cycles and therefore of phenomena time and analysis macros). Duration and amplitude of a cycle are often proportional. Cycles range from 3-11 years (Kitchin-Juglar) to 50 years (Kondratiev).
"The Times 03/Jan/2009 Chancellor on brink of second bailout for banks"
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