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Where Are We In The Business Cycle Today

Growth grinds to a halt and then reverses. Growth doesn't come to a complete stop once we're past the initial spike. Take even an old line business such as IBM - which is as mature as they get .


Inflation will cool off the economy. Cooling off the economy is bad. Inflation targeting has increased the degree of freedom in foreign exchange policies to mitigate the impact of external shocks, while enhancing the effectiveness of monetary policy responding to cyclical fluctuations. Inflation has to be running at higher than 5% p.a. Why would anyone lend at that rate?

Government spending accounts for 15-20 percent of total spending. Even a $75 billion increase in government spending is not a large increase in terms of total spending. Governments everywhere began focusing on a set of policies designed to improve economic growth. Technological advances forged bridges between nations as real computing and communication costs plummeted by 99 percent over the past three decades. Government figures show consumer spending on computers rising at its slowest rate since 1992, while unfilled orders for information-technology equipment are shrinking for the first time since 1994. O'Brien, economist for Hewlett-Packard Co.: ''We think we're in the late stages of a business cycle, and we're exhibiting the lower growth rates you'd expect,'' because of lower capital spending.

Government intervention in the economy can be risky, however. For instance, some of Herbert Hoover 's efforts (including tax increases) are widely, though not universally, believed to have deepened the depression. Government hampering aggravates and perpetuates the depression. Yet, government depression policy has always (and would have even more today) aggravated the very evils it has loudly tried to cure. Government, an important institution serving the interest of absentee ownership (Veblen, 1923: 432), enhances "prices by contributing to the security [of the country]" (Veblen, 1923: 400). Veblen (1904: 250-56 and 1923: 34-5 and 398-411) thinks that security is maintained by spending on police and military; both of these wasteful expenditures generate a high aggregate demand that enhances prices and revenues.


Interest rates and credit also impact business cycle. When interest rates are low, companies borrow money to make new investments often adding jobs to the economy. Interest rates were also increasing. Apartment units begun dropped from their peak of 1,047,500 in 1972 to 268,300 in 1975 (p. Interest rates, in turn, are a crucial determinant of how much firms and consumers want to spend. A firm faced with high interest rates may decide to postpone building a new factory because the cost of borrowing is so high.






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