Sunday, January 30, 2011

Business Cycle

Is business cycle still relevant and reflective in today global economy?
Can we still rely on business cycle to predict the next boom and bust?

I happened to keep an old newspaper cut (The Sun Malaysia, 1 April 1998) on this Economic Clock. I reproduced it as below.

I think the exact cycle is no longer as accurate as it once was in individual economy due to interconnection of world economy.

(Click on the picture to see a bigger and clearer picture.)

However, certain relationships between the events are still very true, i.e. lower interest rate leads to higher share prices and real property prices.

What does not work now is that the governments refuse to allow interest rates to go up and keep printing money to ease liquidity to fuel the economy for political reasons. So Slowdown and Gloom seem to have disappeared and as such we never really feel there is recovery.