Business cycle ending soon? Many are growing more and more concern over whether our not our current economic business cycle is coming to an end. Our current meager business cycle is in about its 53rd month. When looking at the thumbnail chart, it illustrates that since 1879 we have had 29 economic recoveries. The average number of months per recovery has been 39 months. The number of economic recoveries that have lasted longer than current is 6. So clearly this is an appropriate question.
We can also see from the thumbnail chart that the business cycles have in fact got longer rather than shorter. Some even argue that the recessions are getting deeper. What are some rationales for this?
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[li]Central banking is infinitely more evolved and secure than it was 100 years ago. Central banks are far from perfect and certainly do things that exacerbating problems at times, but central banking definitely helps secure what would otherwise be a banking system that could cause economic excesses and contractions.
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[/li][li]We live in an era with automatic stabilizers. In other words, we live in an era where government policy now expands and contracts around the business cycle thereby lessening their impacts. For instance, tax receipts, fiscal spending, expand and contract as the cycle expands and contracts and helps support the economy in both downturns and in upturns. Again, some would argue that this is a very imprecise economic tool.
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[/li][li]Another point is the market efficiency of our market systems. Having commodities, for example, traded on a publicly traded exchanges, with many more participants, causes prices to fluctuate with the economy much quicker. Oil, for example, the life blood of the economy, rises which often acts as a damper to cool down the economy, and falls to give it a boost.
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[/li][li]The much derided globalization of our economy can also add to the notion of automatic stabilizers. When one geographic area is doing bad, another can do better. This equalization of earnings can act as an automatic stabilizer. It also can be a threat, if something bad happens it reverberates globally. This last point might explain also why the recessions are getting deeper – global integration means global recessions.
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So the question again is, when does this current business cycle end? There is a theory running on the Blogosphere that is akin to the, “it worked good when I had it,” syndrome. Let’s take a look at the recent history of Fed chairpersons at the Fed. Paul Volcker had got out just months before the crash of 87 and handed the reins to Greenspan. Greenspan did the best dump in history. He handed the Fed over to Bernanke in early 2006 just near the peak in the housing bubble, which was largely blamed for the subsequent crash. And now Bernanke handing over to Yellen. Is there another crash about to happen? Especially as the big taper is just now starting to kick in. Fed Chiefs have incredible timing. Watch out for the top of this, business cycle in the next 6 to 18 months.
Blue Point Trading, William Thompson