WEBVTT NOTE This file was generated by Descript 00:00:00.030 --> 00:00:01.380 Short term debt cycle. 00:00:02.850 --> 00:00:06.300 As economic activity increases, we see an expansion. 00:00:06.570 --> 00:00:09.870 The first phase of the short-term debt cycle spending 00:00:09.870 --> 00:00:11.700 continues to increase in prices. 00:00:11.700 --> 00:00:12.630 Start to rise. 00:00:13.080 --> 00:00:17.130 This happens because the increase in spending is fueled by credit, which 00:00:17.130 --> 00:00:18.960 can be created instantly out of thin. 00:00:20.190 --> 00:00:23.310 When the amount of spending and incomes grow faster than the 00:00:23.310 --> 00:00:25.860 production of goods, prices rise. 00:00:26.730 --> 00:00:30.210 When prices rise, we call this inflation. 00:00:31.770 --> 00:00:36.180 The central bank doesn't want too much inflation because it causes problems. 00:00:37.050 --> 00:00:38.519 Seeing prices rise. 00:00:38.760 --> 00:00:42.090 It raises interest rates with higher interest rates. 00:00:42.360 --> 00:00:47.430 Fewer people can afford to borrow money and the cost of existing debts rises. 00:00:48.170 --> 00:00:51.660 Think about this as the monthly payments on your credit card going 00:00:51.660 --> 00:00:56.820 up because people borrow less and have higher debt repayments, they 00:00:56.820 --> 00:00:58.620 have less money left over despite. 00:00:59.445 --> 00:01:04.694 So spending slows and since one person's spending is another person's income, 00:01:05.474 --> 00:01:08.535 income drops and so on and so forth. 00:01:09.525 --> 00:01:16.605 When people spend less prices go down, we call this deflation economic activity 00:01:16.605 --> 00:01:19.215 decreases, and we have a recession. 00:01:19.785 --> 00:01:23.805 If the recession becomes too severe and inflation is no longer a problem. 00:01:24.630 --> 00:01:30.179 The central bank will lower interest rates to cause everything to pick up again with 00:01:30.179 --> 00:01:35.369 low interest rates, debt repayments are reduced and borrowing and spending pickup. 00:01:35.789 --> 00:01:40.710 And we see another expansion as you can see, the economy works like a 00:01:40.710 --> 00:01:45.509 machine in the short term debt cycle spending is constrained only by the 00:01:45.509 --> 00:01:49.050 willingness of lenders and borrowers to provide and receive credit. 00:01:49.560 --> 00:01:53.610 When credit is easily available, there's an economic expansion. 00:01:54.540 --> 00:01:58.950 When credit isn't easily available, there's a recession and note 00:01:58.950 --> 00:02:02.370 that this cycle is controlled primarily by the central bank. 00:02:03.240 --> 00:02:07.740 The short-term debt cycle typically lasts five to eight years and happens 00:02:07.740 --> 00:02:10.080 over and over again for decades. 00:02:10.590 --> 00:02:15.840 But notice that the bottom and top of each cycle finish with more growth than 00:02:15.840 --> 00:02:18.560 the previous cycle and with more debt. 00:02:19.330 --> 00:02:25.410 Why because people push it, they have an inclination to borrow and spend more 00:02:25.560 --> 00:02:32.400 instead of paying back debt it's human nature because of this over long periods 00:02:32.400 --> 00:02:37.950 of time, deaths rise faster than incomes creating the long-term debt cycle.