Economic Growth Cycle
Today I will talk about economic growth cycles. Many of you might already know that world economy runs in cycles. On the one side we have the prosperity which is the increasing of the economy. This is the time when economic growth is positive, we have positive GDP and everyone is happy. On the other side we have negative economic growth. We are in this times at the moment. The recession has hit the world. We are in really hard and dangerous times. No one actually knows what’s going to happen. Many people are down, unemployed and looking for some kind of exit. The percentage of unemployed is increasing every day and this represents a threat to our civilization. You ask why of course and the answer is very simple. Once there are too many people out there who cannot eat, too many people who live out of government support, the system will crash. We have been witnesses to this kind of events many, many times through the history. Revolutions have brought us out of these problems. But the problem is that today if the revolution strikes it won’t be only the king who will go down. It will be the whole world that will end in war, it will be the whole world that will crash.
When many people are down the whole system is vulnerable. Of course the same question pops out, why? And the answer is again quite simple. When people are down they are looking for a leader, they are looking for someone who will take them out of their misery. And this is a chance for many bad people such as Hitler for example to gain control and do very bad things such as those that happened during the second world war.
But back to our economic cycles. I will now try to explain economic growth cycles through movements of stocks. Let’s start our story when the prices are low. For example Company X has its stock value of €100 for one stock. The price is very low so many people start buying. Because everyone is buying the price goes up. And because price is going up and up and up more and more people are buying. This is a positive growth part of the cycle. But as everyone could guess this cannot go on forever. Sooner or later people are happy with what they have earned from stocks and they start selling. And when one of the big stock investors sell their share, the stock price drops. Of course it doesn’t drop for much but it drops enough that more people get scared. Once more people get scared those people sell as well because they’re trying to protect their investment. That then cause that the price drops a little bit more and once the price drops a little bit more and more people get scared, more people sell and price drops a little bit more, again more people get scared and so on and so on. As you might have figured it out already we have entered the negative economic growth part of the cycle. The prices are dropping and dropping and dropping and this is what we are looking right now on our socks every day. However the good news is that the economy is not just one cycle. There is whole bunch of economic growth cycles and that cycle that is going on at the moment will end sooner or later as well. The prices are going down and once they’re down enough people decide to buy again. Once one of the bigger investors decide that the price is low enough to buy and buys a big share of stocks the price goes up a little bit. That is a signal for smaller investors that the cycle has turned and the time of positive economic growth is coming.
Because many investors are now expecting that the prices will go up they start buying stocks. And as everyone knows when a lot of people are buying stocks prices of stocks are going up. Because prices are going up more and more people are buying stocks. That then causes that prices are going up a little bit more and as you have noticed we are again in the part of the cycle of positive economic growth. Our cycle has ended and the new one has began.
I hope I managed to explain the logic of economic growth cycles. The most important thing to know about economic growth cycles is that when investing you must not do what everyone else is doing. Because once everyone else is doing it there is not much time left before the whole cycle will change and turn around. So make sure you do what everyone else will do before they do it. That will give you a head start and a chance to earn lots and lots of money.
Written by: Matt
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Tagged as business cycles, economy cycles, economy theories, how do stocks work, stocks, stocks advices, stocks trading + Categorized as Other, About economy, Economy articles, Global economy, Other, Investment economy