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The Economy 
- Productivity Growth
- Short Term Debt Cycle
- Long Term Debt Cycle
- Productivity Growth
- Short Term Debt Cycle
- Long Term Debt Cycle
Transactions 
An economy is the wealth and resources of a country or region, especially in terms of the production and consumption of goods and services.
Credit spends just like money...
Money + Credit = Total Spending
The total amount of spending drives the economy
An economy is the wealth and resources of a country or region, especially in terms of the production and consumption of goods and services.
Credit spends just like money...
Money + Credit = Total Spending
The total amount of spending drives the economy
Total spending / Total quantity = price
All cycles and all forces in an economy are driven by transactions.
All cycles and all forces in an economy are driven by transactions.
Market 
Consists of all the buyers and all the sellers making transactions
The BIGGEST buyer and seller is the government
Central Government & Central Bank
Central Government:
- Collects taxes
- Spends money
Consists of all the buyers and all the sellers making transactions
The BIGGEST buyer and seller is the government
Central Government & Central Bank
Central Government:
- Collects taxes
- Spends money
Central Bank:
- Controls amount of credit & money in the economy
- Influences interest rates
- Prints new money
- Controls amount of credit & money in the economy
- Influences interest rates
- Prints new money
Credit 
- The most important part of the economy
(also least understood)
- Biggest and most volatile part
Lender
Borrower
Lenders want to make their money into more money
Borrowers want to buy something they can't afford
(House, car, etc)
- The most important part of the economy
(also least understood)
- Biggest and most volatile part
Lender
BorrowerLenders want to make their money into more money
Borrowers want to buy something they can't afford
(House, car, etc)
Credit helps both borrowers and lenders get what they want
Borrowers promise to repay the amount they borrow called principal plus an additional amount, called interest
When interest rates are high, there is less borrowing because it's expensive
Borrowers promise to repay the amount they borrow called principal plus an additional amount, called interest
When interest rates are high, there is less borrowing because it's expensive
When interest rates are low, borrowing increases because it's cheaper
When borrowers promise to repay and lenders believe them then credit is CREATED
As soon as credit is created, it is turned into DEBT
Debt is both an asset to the lender & a liability to the borrower
When borrowers promise to repay and lenders believe them then credit is CREATED
As soon as credit is created, it is turned into DEBT
Debt is both an asset to the lender & a liability to the borrower
When the borrower repays the loan + interest...
The transaction is settled
When a borrower receives credit, they can increase spending
Spending $ drives the economy
ONE PERSONS SPENDING IS ANOTHER PERSONS INCOME!
Increased income Increased borrowing Increased spending
The transaction is settled
When a borrower receives credit, they can increase spending
Spending $ drives the economy
ONE PERSONS SPENDING IS ANOTHER PERSONS INCOME!
Increased income
Increased borrowing Increased spending
This is why we have cycles 
Debt allows us to consume more than we produce when we acquire it & forces us to consume less than we produce when we pay it back.
Debt swings occur in 2 cycles:
- one takes 5 to 8 years
- one takes 75 to 100 years
Debt allows us to consume more than we produce when we acquire it & forces us to consume less than we produce when we pay it back.
Debt swings occur in 2 cycles:
- one takes 5 to 8 years
- one takes 75 to 100 years
Most of what people call money is actually credit
The total amount of credit in the US is about $50 trillion
The total amount of money is only about $3 Trillion
The total amount of credit in the US is about $50 trillion
The total amount of money is only about $3 Trillion
Credit is bad when 
Finances over consumption that can't be paid back
Credit is good when
It efficiently allocates resources and produces income
Borrowing creates cycles. If a cycle goes up, it needs to come down.
Finances over consumption that can't be paid back
Credit is good when
It efficiently allocates resources and produces income
Borrowing creates cycles. If a cycle goes up, it needs to come down.
Short Term Debt Cycle (5-8 years)
As economic activity increases, we see expansion
First phase of short term debt cycle:
- Spending continues to increase and prices start to rise.
- Increase in spending is fueled by credit.
As economic activity increases, we see expansion
First phase of short term debt cycle:
- Spending continues to increase and prices start to rise.
- Increase in spending is fueled by credit.
When the amount of spending and income grow faster than the production of goods, prices rise (inflation)
- Prices rising increase interest rates.
- Higher interest rates = less borrowers
- Cost of debt rises
- Spending slows
- Incomes drop
- Prices rising increase interest rates.
- Higher interest rates = less borrowers
- Cost of debt rises
- Spending slows
- Incomes drop
When people spend less, prices go down. (deflation)
Economic activity decreases and we have a recession.
If the recession is too severe, the central bank will lower interest rates, causing spending to pick up as well as borrowing and we see another expansion.
Economic activity decreases and we have a recession.
If the recession is too severe, the central bank will lower interest rates, causing spending to pick up as well as borrowing and we see another expansion.
Credit easily available = expansion
Credit unavailable = recession
Credit unavailable = recession
Long Term Debt Cycle (75-100 years)
In a deleveraging, people cut spending, incomes fall, credit disappears, asset prices drop, stock market crashes
A rush to sell assets floods the market
Less spending, less income, less wealth, less credit, less borrowing.
In a deleveraging, people cut spending, incomes fall, credit disappears, asset prices drop, stock market crashes
A rush to sell assets floods the market
Less spending, less income, less wealth, less credit, less borrowing.
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