First the simple part of the economy translationpeople governments Business all involve in thistransitionMoney goods services Finalcial assetsare being traded by people government Businesswith the help of money eraditthe biggest buyer the seller of this translationis the government which consist of 2 partsCentral bank central governmentIt controls the amount of thecollect faxes money eradit in the economyspendsmoney 97 does it by influencing interesrate printing new moneythus it's the most importantfactor for radit in economy whatiseradit as like buyers sellers go to the marketso do lenders borrowerslenders wanna make more money from the money theyhasborrowers wanna buy something which they cannotaffordPrincipleinterestBrrowerslenderswhen interest rates are high it's difficult to dothis translationRemember Spending drives the economy oneperson'sspending is another person's income thus move incresingspending increasing in incomethis simple self reinforcement leads to selfeconomic growth that's why we have cycles over time we learn that accumulated into our livingstandadrs but it isn't true in short run it matters inlong run but radit matters most in the short runthis is because productivity growth doesn't flaetuatenueruns75 100yearsfor most people it's invisible cause they see them tooclose dayby day week by weekLet's do some thoughtexperiment Let's imagine a world onthis way I can only increaseifhave cyclesBankadit isn't necerybad which only create cycles it'sbadwhen it finances bad transfiction which can't be paid backlaterborowerings creates cycles if cycle is going up iteventually needs to come down this leads into the shortterm debt cycle cause increase in spending is create by era dit arepo rate re raporatewhen the amount offendingtinconnegnow fasterthan the production of goods prices rise It's calledInflation the central bank doesn't want too muchinflation seeing prices rise it raises interest rateswhen people spends less pricesgo down it causesDeflationwhen economic activity decreases we call itRessionwhen ression become too severe inflation is nolonger a problem the central bank lower the interest rateto cause everything to pickup again we see anotherexpansitionIn short term debt cycle only happen when lendersborrowers participatethe short term debt cycle typicallyget controlled by central banks lasts5 8 years happens over overagain in Decades But notice thebottom top of each cycle finnishwith more growth in previouscyclewhybecause people push it instead of payingback previous debtthey take new debt cause they things think things are going great due to this over the long run periods oftime debt rises faster than income creating the longterm debt cycleDespite people are indebted lenders even morefreely extend eradit why people things are going greateven though debt burden continues to raise fastenincome also raises so as long as income continue toraise the Debt Burden stays managableat the same time asset valueSoar or TN people buy assetwith more more borrowing moneycasaing increasing asset pricepeople feel wealthy so even with the accumilation withthe lots of debt raising income asset values helpborrowers remain eradit worthy for along timebut it cannot go forever for decadescause debt repaymentgrowing faster than income forcingpeople to cut back on their spendingSince one person's spending is anotherpersons income forcing people to cut back on their spendSince one person's spending is anotherperson's income it begains to go down which makes peopleless creditworthy causing borrowing togo down whichmakes spending drops even furtherthe cycle revise itself 7longterm debtpeg Now economy needso deleveragingoutspending income fall eradit disappere asset pricedropBank getstock marketsqueezesocial crashesbing.aethoIRyer tertifaisesLess burrowing Less spending Less incomeLess eradit Less wealththis is the same as reeission but the difference hereis interest rate has already ofthe difference between deleveraging arecessionis in de leveringing the debt burden has gottento big can't be relief by lowering interest rateNow How can an economy be delevergedcut spending reduce wealthdebt Re distributionPrint Money cut spending doesn't work cause one person's spendingis another incomefor instance you go to a bar when you buy a beerput it in a bar tab you promise to repay thebartender your promise become a asset to bartenderifyou don't keep your promise the asset isn't worth anythmany lenders don't want their asset toget disappreeagree to debt me stacking means they paid back lessonin a longer time frame after all its better to havesomething than nothing cause it means they don'tgetpaid much it takes time to get repaid somehowa contract is broken in a wayeven though debt disapper itcauses income asset value to disappear fasterSo the debt burden continue to get worseall this causes problem to central governmentunemployment lower interest rate means collectfewer taxesat the same time it needs to increasesit's spending because unemployment has raisen duetoinadequate savings need finnalcial support to governmentNow this government have to createstimulusplans increase their spending to make up fortheir decrease in the economyThis is the game of budget deficit you hear innewso uspendearnNow to make up the budget deficit government needmore money How money are gonna come fromraise taxy borrow moneycause income is lowunemployment is highnow who are the money come fromThe Rich towards rich from poor Richleave country if possibleif this contineus the socialdisorder can break out this lead to hitlar come intoe warinf Depessiononnow people need money who can give moneythe central bank whycause what people thought money is actuallycredit unlike all previous ways what people thoughtmoney printing is inflationary By Buying asset with new printed money it helpsasset value to go up people more eradit worthyHowever this ienly help who have finalcial assetIcentral bank an only print money but only canbuy financial asset on the other side centralgovernment buygoods services to put money topeoplenow this 2 hasto work togetherBy buying government bonds the central bankessentiallylends money to the government allowing it to mea deficit increase spending on goods servicesthrough it's stimulus programs unemploymentbenefitsThis increase people's income as well asgovernment debtPrinting new moneycutspendingwealthredistributionreduce debtuninflationaryDeflationary
