Let's finish talking about a healthy economy's cycles of growing and recessing. We talked about the first two phases, Expansion and Prosperity, last time in Up and Down, Around and Around I. Let's move on to the last two phases.
Contraction
This is a period of economic decline. Prices drop. Sales slow down, people are buying less, and families start tightening their belts. This is a time where unsuccessful businesses must make hard decisions. Inefficient business practices must change or the business could fold. Marketing practices are analyzed. New ways to improve the product are discovered.
Polly's business is struggling. She has to let two of her employees go. She gives them six months notice and allows them one day a week to look for another job. She finds a cheaper place to purchase zippers and buttons, freeing up some money to fix two of her sewing machines. She asks her employees to help her come up with improvements that will make her clothing more marketable. One of her seamstresses has an advertising idea that becomes very popular. Sales increase and she hires back the employees she had to let go. Polly made wise use of her season of contraction.
Sometimes a season of contraction happens in a business or family because they are cutting back to save for the next season of growth. Unnecessary expenses are purged and frivolous pursuits are abandoned.
In a season of contraction, production slows down or consumer spending slows down. Companies make less stuff or people buy less stuff. Unemployment rates go up as people begin to lose jobs because of a drop in their business's profits.
Interest rates might rise, or banks might just be more careful about who they lend to. Someone who is a high-risk borrower might be able to get a loan in a time of expansion, but not in a time of contraction or recession. Banks are less willing to take risks on people.
Sometimes a season of contraction is just a natural response to an artificial government-induced season of prosperity. Prices just level off. Maybe housing prices went up to a level that was more than homes are really worth. A season of contraction will bring housing prices back down to a reasonable level.
Recession
Contraction
This is a period of economic decline. Prices drop. Sales slow down, people are buying less, and families start tightening their belts. This is a time where unsuccessful businesses must make hard decisions. Inefficient business practices must change or the business could fold. Marketing practices are analyzed. New ways to improve the product are discovered.
Polly's business is struggling. She has to let two of her employees go. She gives them six months notice and allows them one day a week to look for another job. She finds a cheaper place to purchase zippers and buttons, freeing up some money to fix two of her sewing machines. She asks her employees to help her come up with improvements that will make her clothing more marketable. One of her seamstresses has an advertising idea that becomes very popular. Sales increase and she hires back the employees she had to let go. Polly made wise use of her season of contraction.
Sometimes a season of contraction happens in a business or family because they are cutting back to save for the next season of growth. Unnecessary expenses are purged and frivolous pursuits are abandoned.
In a season of contraction, production slows down or consumer spending slows down. Companies make less stuff or people buy less stuff. Unemployment rates go up as people begin to lose jobs because of a drop in their business's profits.
Interest rates might rise, or banks might just be more careful about who they lend to. Someone who is a high-risk borrower might be able to get a loan in a time of expansion, but not in a time of contraction or recession. Banks are less willing to take risks on people.
Sometimes a season of contraction is just a natural response to an artificial government-induced season of prosperity. Prices just level off. Maybe housing prices went up to a level that was more than homes are really worth. A season of contraction will bring housing prices back down to a reasonable level.
Recession
The nation is considered to be in a recession if our GNP declines for 2 or more consecutive quarters (3 month periods). A recession is often accompanied by a decline in the housing market, drop in stock prices, and an increase of unemployment. This is a time where unsuccessful businesses are purged. People who own businesses that fail during this season, can move their resources into more production ones.
This is not the only time that businesses fail. Any time a business is unable to compete in the financial market, it is a way of nudging the business owner on to another, more-marketable area. Almost all very successful business owners have several failures before achieving great success. With every failure, much is learned that can be applied to the next business..
A recession is similar to a contraction, but felt more strongly by more of the population. In a recession, production slows down, profits decrease, and consumer spending decreases. People are making less money, losing their jobs, or afraid of losing their jobs, so they spend less money. Unemployment rates begin to rise. Interest rates often go up or banks are less willing to lend money across the board, not just to high-risk borrowers.
Because it is horrible to see people lose their jobs, often the government will step in to help. The well-meaning, often times, government intervention only prolongs contraction and recession seasons of the cycle. The government has a tendency to "keep businesses" going that would be better off folding. Maybe it would be better to give businesses owners money to start a new business that would be more competitive in the market.
Jim owns a factory that builds boats. His company is failing. The government offers to bail him out, but Jim says, "No thank you." He fasts and prays. The Lord gives him an idea for a new business. His factory will now build bicycles. He sells most of his equipment and purchases new machinery. The bicycle manufacturing can be done in half of the space required to build boats, so Jim rents out the other half. Now he has income from the bicycles and rent. Jim made wise use of the recession season in his business.
If a recession continues, it can become a depression.
How Cycles Help
We all love seasons of expansion and prosperity. It is fun when money is rolling in, but often these seasons cause prices to jump up to unreasonable places. A season of contraction will bring those prices back down to a more reasonable level.
If we, as Christians want to avoid debt, than we need to tighten our belts and save once in awhile. We also need seasons that forces us to examine our business practices, expenses, and policies. It often takes lean times to bring out creative ideas. After all, necessity is the mother of invention.
As Christians, we know that God's promises hold true in every season of the economic cycle, even when the government is intervening to help and causes more harm than good. Our provider is not hindered by economic downturns, He owns the cattle on a thousand hills. He is able to provide in season and out of season.
Be Blessed!
Merey (Meredith Curtis)
This is not the only time that businesses fail. Any time a business is unable to compete in the financial market, it is a way of nudging the business owner on to another, more-marketable area. Almost all very successful business owners have several failures before achieving great success. With every failure, much is learned that can be applied to the next business..
A recession is similar to a contraction, but felt more strongly by more of the population. In a recession, production slows down, profits decrease, and consumer spending decreases. People are making less money, losing their jobs, or afraid of losing their jobs, so they spend less money. Unemployment rates begin to rise. Interest rates often go up or banks are less willing to lend money across the board, not just to high-risk borrowers.
Because it is horrible to see people lose their jobs, often the government will step in to help. The well-meaning, often times, government intervention only prolongs contraction and recession seasons of the cycle. The government has a tendency to "keep businesses" going that would be better off folding. Maybe it would be better to give businesses owners money to start a new business that would be more competitive in the market.
Jim owns a factory that builds boats. His company is failing. The government offers to bail him out, but Jim says, "No thank you." He fasts and prays. The Lord gives him an idea for a new business. His factory will now build bicycles. He sells most of his equipment and purchases new machinery. The bicycle manufacturing can be done in half of the space required to build boats, so Jim rents out the other half. Now he has income from the bicycles and rent. Jim made wise use of the recession season in his business.
If a recession continues, it can become a depression.
How Cycles Help
We all love seasons of expansion and prosperity. It is fun when money is rolling in, but often these seasons cause prices to jump up to unreasonable places. A season of contraction will bring those prices back down to a more reasonable level.
If we, as Christians want to avoid debt, than we need to tighten our belts and save once in awhile. We also need seasons that forces us to examine our business practices, expenses, and policies. It often takes lean times to bring out creative ideas. After all, necessity is the mother of invention.
As Christians, we know that God's promises hold true in every season of the economic cycle, even when the government is intervening to help and causes more harm than good. Our provider is not hindered by economic downturns, He owns the cattle on a thousand hills. He is able to provide in season and out of season.
Be Blessed!
Merey (Meredith Curtis)
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