Understanding the Economic Machine The economy is a simple, mechanical system driven by human nature and three main forces: productivity growth, short term debt cycle, and long term debt cycle. Transactions are the building blocks of the economic machine.
Credit as an Engine for Economic Growth Credit drives spending which in turn drives income. Increased income leads to increased borrowing and spending, creating a self-reinforcing pattern that fuels economic growth through cycles.
Short Term Debt Cycle Dynamics In this chapter we explore how credit-fueled expansion leads to inflation followed by recession when interest rates rise. The central bank controls this 5-8 year cycle primarily through its influence on credit availability.
Long Term Debt Cycle Unfolding 'Debt-financed' booms lead to bubbles but eventually result in deleveraging due to unsustainable debt burdens. This process involves cutting spending, reducing debts through defaults/restructurings, wealth redistribution from 'haves' to 'have nots', and printing money under careful balance for stability.
Navigating Deleveraging for Stability & Growth During deleveraging periods with high debts relative to incomes; balancing austerity measures with reduced debts via defaults/restructurings while transferring wealth can lead towards a beautiful deleveraging if managed well over time