A healthy economy is not always growing, rather it goes through cycles of growing and recessing. This normal cycle is the result of many things, including the need for businesses and people to save money for seasons of spending. Let's look a normal economic cycle.
What factors are used to determine each stage.
- GNP (Gross Domestic Product) (How much stuff a nation is producing)
- Interest rates (How much interest banks are charging because so many people are in debt)
- Unemployment rates (How many people are out of work and how many people have jobs)
- Consumer spending (How much money people are spending)
Over time, people have made things to sell to other people to make money to buy the things their own families need. Other people provide services to bring a paycheck home that will buy necessities. All this buying and selling, the flow of money, the cost of goods and services, and how much stuff is actually produced is called the economy. This economy ebbs and flows: expanding, booming, contracting, reccessing--the economic cycle.
For someone to make something to sell, he/she must look around and gather available resources (cloth, oranges). To this is added hard work. Polly turns cloth into clothing with sewing (work). Jennifer picks and boxes (work!) oranges to ship to customers in another state.
Jennifer expands her orange shipping business by hiring more people to pack boxes to ship. She adds to her customer base too. The profits begin to grow more and more each month. Jennifer is experiencing expansion in her business.
For businesses to grow they need capital (money, resources). This capital can be obtained by saving carefully or borrowing money from a bank. Most entrepreneurs in the 1800's saved money carefully, while most entrepreneurs of today borrow money from banks to expand their businesses.
During a season of expansion, interest rates are low enough for businesses to feel comfortable borrowing money to finance expansion. Production rates are increasing and consumers are spending more. In other words, businesses are making more stuff and people are buying more stuff. This increase in production requires more employees, so businesses are more likely to hire people than fire people. Employment rates go up!
Mike and I run our businesses debt free. We save money to expand, avoiding debt. We are unusual, even among Christian business owners.
The government can create expansion in an economy by printing more money (inflation!) and decreasing interest rates. Though this causes the value of money to go down, there is a lot more money floating around, making everyone feel good. When the government creates a season of expansion and prosperity, it will inevitably burst and decline to a deeper recession that non-government created expansions.
Jennifer purchases another orange grove debt-free when she moves from a period of expansion to one of prosperity. As the profits pour in, she is careful to tithe, save, increase her employees' pay, and purchases some needed equipment. This is wise use of the season of prosperity.
During a season of prosperity, production rates are high and consumer spending is rampant. Businesses are flooding the market with products that people want to buy. People are spending gobs of money. Interest rates are low enough to be attractive to people so there is a lot of borrowing by businesses and individuals. Unemployment rates are very low. It is easy to find a job if you are looking and willing to work.
In an artificially (government) created season of prosperity, there will be lots of buying and selling, but little true ownership. That's because everyone is using credit cards and loans to purchase things. Often loans are easy to get, even for people who are high risk to default. That means that banks lend to people that are likely to stop paying their loan off. When this happens the banks are stuck with a lot of cars, boats, homes, and other property--but that's another season of the cycle.
Cycles Can Be a Blessing
Seasons of expansion and prosperity are universally loved, but God works through each economic season to bring wisdom and change to families and businesses. Next time we will talk about contraction and recession. Until then, keep your eyes on Jesus, our Provider and King!
Merey (Meredith Ludwig Curtis)