Inflation

Become A Millionaire – The Business Cycle

The business cycle is generated by a repeating economical pattern. Interest rates and Gross National Product growth work together to generate a repeating economical pattern  termed as the business cycle. A classic cycle starts with interest rates  plummeting.  When they decline, consumers purchase more homes and high-priced durable products  such as automobiles simply because financing costs less.  Home constructing and

Business Cycle

manufacturing activity increase. Increased action gradually spreads throughout the  overall economy. As businesses spend more on salaries, laborers purchase more.

Ultimately all of this business activity leads to competition for consumer credit. Businesses need to borrow to invest for expansion and consumption demands. Prospective home buyers want mortgage loans, and shoppers run up their credit card balances and consumer loans. At the same time accelerating business activity produces more demand for amenities and increase labor expenses. This increases selling prices and helps bring about inflation. Saving accounts suffers because people are spending a great deal. Consequently there is less money to lend and interest rates inevitably climb sufficient to choke off the business growth. Next the economic climate cools down until eventually interest rates drop once again.

This cycle would take place whether or not the federal government did absolutely nothing. But since the great depression the federal government continues to be an engaged participant in the business cycle, intentionally shifting interest rates up and down with the actions of  the Federal Reserve Board.  Theoretically, the Federal Reserve should really take action countercyclical minimizing the length of the business cycle shifts. This is done by decreasing or accelerating the pace of money growth to increase or decrease interest rates. In practice, via, political pressure as well as the difficultly of fine tuning, results in the Federal Reserve Board normally making the cycle far more unpredictable. Operating in a manner that economists call pro-cyclical.

This is how that actually works. Just before the business cycle beings, the overall economy is in recession. Needing to get business going once again, the Federal Reserve encourages interest rates to slip, starting off the business cycle with increased momentum than it might normally have. Just like a swing given additional shoves, the business cycle gradually climbs too much. As inflation increases and the economic climate displays indicators of heating up, the Federal Reserve gives interest rates an additional boost to finish the process and cools everything down.  The economy than retreats into economic downturn and the entire pattern starts once again.

Now heading past the business cycle. Not every movement in stock prices will be a consequence of the business cycle.  Long-term developments throughout the economy also impact share values. A few of these movements are known as long waves patterns consisting of growth and stagnation, inflation and deflation that can cause a kind of mega-business cycle extending over durations of several decades.

What is important about this long term economical trend it tends to take the course of  inflation. Within this stage prices go up with every period. Due to the fact higher inflation promotes higher interest rates which in turn result in the P/Es of stocks and shares to shrink it damaging the stock market. Recently however , decreasing inflation has sent  interest rates towards reduced levels, sending stock values to a roller coaster trend.

So now you ask what does this have to do with how to become a millionaire.  By owning your own business, possible working from home, you can position yourself such that this whole process will have little effect on you.  The years from the mid 2000’s to 2011 are a good example.  Soaring gas prices have increased prices of products and transportation across the board.  Record high unemployment rates, housing industry collapsing, trillions of dollars pumped into the economy by the government have portrayed an unstable economy.  Those who are living from pay check to pay check are the ones hit the hardest.

Yet during this entire period the internet still continues to exchange billions of dollars. The need for information is a monster out of control. When you have the information or the product the consumer wants or needs you solve their need and they are more than happy to pay for that service. The instability of employment have created and lead to many small business owners to turn to the internet for control of their financial future.  The entrepreneur’s online success has provided stability for many who seek financial independence and fast path to become a millionaire. Yes even in this down economy millionaires are still being created, the internet being the vehicle to make this possible.

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Friday, January 14th, 2011 Economy No Comments
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