THREE SIMPLE AXIOMS That Tell Us The Financial Market Mess is Temporary
AXIOM #1 Recessions are a Normal Part of the Business Cycle. Booms and Busts are as old as the data available. The business cycle is something that every economy must go through. Although the news media outlets treat a recession as abnormal, to an economist it is as normal as a person exhaling. Because we have had an extremely good run of growth and productivity for the past 20 years, now that we are entering into a recession, there is a temptation to liken it to the depression of the 1930’s. This is a mistake. Things won’t get that bad. AXIOM #2 Banks make money by lending money. Just like a landscaper needs to plant trees and trim shrubs to keep his business going and a baker needs to bake and sell loaves of bread to keep her business going, a banker needs to lend money to keep his business going. Even though there is a “credit crunch” going on now, it can’t go on forever. Eventually, banks have to make loans. The lack of lending we are witnessing now is simply a normal activity of