We are taking a break from our step by step analysis of a division of labor economy to examine the big picture of what is going on in our current economy. Most individuals are still confused about why the financial market suddenly collapsed in 2008 and why our economy continues to struggle five years later. Moreover, there is no consensus on the pace of our alleged economic recovery. The reality is that our economy is not even recovering from the 2008 financial crisis. In fact, due in large part to our government’s response to the 2008 crisis, our entire economy is on the verge of a collapse that will make the Great Depression look like a walk in the park.
The key to having an intelligent and deep understanding of our current and future economic problems is a thorough knowledge of what is called “business cycles.” Our current economic struggles and the coming economic collapse are all part of a repetition of business cycles that have occurred over the last century. We will walk through the last century’s business cycles in detail when we resume our concurrent OCR series. However, this summary is written now to provide a “bird’s eye view” of why our economy continues to struggle and why, despite all the political rhetoric stating otherwise, the economy is headed for a deep and severe downfall.
It is first important to understand what is meant by the term business cycle. All economies go through changes. Producers constantly create products in anticipation of changing consumer demand. Those producers who guess right stay in business. Producers who guess wrong must start over. These types of changes are really just business fluctuations. Economies will always deal with business fluctuations because human desires and technology are always changing. Furthermore, there will continually be errors by entrepreneurs in anticipating the demands of consumers. Thus, we are not concerned with business fluctuations.
The type of economic changes that we are concerned with are the economic periods where the economy as whole seems to be growing and there is suddenly, as in 2008, a global economic meltdown. Why do producers throughout the various industries and unique sectors of the economy, who once were doing so well in predicting consumer demand, suddenly find themselves in financial trouble? In other words, we want to understand why there are general periods of booms and busts in the aggregate economy.
The sole connecting link among all the various and unique industries is the general medium of exchange, our money. Money connects all economic activities. Therefore, an explanation of these booms and busts must start with an examination of money and its impact on our economy. Through that examination, it is revealed that these dramatic booms and busts in the economy have been caused over the last century by the Federal Reserve (“Fed”). The Fed creates these boom and bust cycles through its manipulation of interest rates (the price of borrowing money) and the ensuing expansion of credit by fractional reserve banking.
This manipulation by the Fed is the accepted modus operandi in the United States.
It’s also why the United States is on the verge of economic collapse.
All opinions expressed belong solely to their authors and may not be construed as the opinions of other writers or of OCR staff.
NEXT IN THIS SERIES: THE FED, THE BOOM, AND THE BUST. Check OCR tomorrow for the next installment of “Our Coming Economic Collapse.”