You will read a series of articles on this topic. This is part-1 of the forthcoming series of blog posts on economy. Ever since my study on stocks have begun (almost a decade back), I always found a strong correlation between “surrounding economy” and stock market’s performance. I am sure you must also have realised this interdependency. See, the debt crisis of 2008 in USA, had its impact across the globe. Hence, it becomes only prudent for us to peep into our economy and see how it works.
Due to debt (credit), our economy’s progress happens in cycles. Why we are referring it as “cycles”? Because a set of events in an economy, tends to repeatitself over and over again in both long and short term. About the short term cycles: What is the duration of one short term cycle? 6-8 years. What are the “set of events”? We will see it now. Though we are calling these cycles as short, but its time horizon is 6-8 years. In normal reference, we treat this time horizon as long-term, right? What I am trying to say?
In part-2 we have seen what’s causing the short term debt cycles. Availability of cheap credit which was causing those cycles. Long term debt cycles are also caused by credit (excess debt accumulation in economy). But how it is possible? Why I am raising this question? Yes, the debt levels falls during the recessions. But still debt accumulation happens. How? For that we will have to see several “short term debt cycles” superimposed on one “long term debt cycle”