The Economic Cycle Has 5 Phases - Where Are We Now?

…What’s happening to the economies of the world is perfectly normal. Once you understand that you will not only be able to steer clear of the emotions of the times today but be objective instead and, most importantly, fully expect what’s about to happen tomorrow.

By Larry Edelson (uncommonwisdomdaily.com)

If you study the history of financial panics back to Roman times, you will find a clear pattern of 5 distinct phases of economic cycles as follows:

Phase 1: Price stability and economic expansion
[Phase 1 is] characterized by peace, zero to low inflation rates, rising industrial production, emerging technologies, income growth, government surpluses and growing personal savings. In short, the best of times.

Here are some examples:

Rome, during its “Pax Romana” period, which lasted nearly 200 years and ended in 180 A.D. The longest peacetime expansion of any civilization ever, when the Roman Empire flourished under five different Emperors.

The industrialization of Europe from 1760-1870, characterized by moderate inflation, huge strides in technology and manufacturing, rising trade and employment.

The similar industrialization of the United States from roughly 1870-1914, with rapid developments in the chemical, electrical, petroleum, and steel industries, in mass transportation, in automobiles and the airplane, in the canning of goods, mechanical refrigeration, and the telephone. Productivity gains … large spurts in GDP growth … and tame inflation.

The 1980s and ’90s, worldwide… the peace dividend as a result of the end of the Cold War … the computer and internet revolutions … declining interest rates … low inflation … rising employment … productivity gains.

Phase 2: Complacency
[Phase 2 is characterized by] rising inflation, asset bubbles, a build-up of massive debts and the acceleration of previous trends.

Still a peace-time environment, but the rise in industrial production and incomes leads to less savings and more consumer spending, which shows up in demand and rising inflation rates. Productivity gains from new technologies initially moderate the upward pressure on inflation. Complacency begins to take hold. Investors, businesses, and politicians begin to ignore common risks, thinking the good times will never end.