Tag Archive : economics

Recession, Depression, Inflation, Stagnation?: Economics Concepts Which Matter

The public is, often, bombarded with, a variety of economic terms, which, often, instead of helping the untrained, better understand, merely confuses them. How often have we heard, terms, such as, recession, depression, inflation, stagnation, etc, but, many, have only a limited understanding, of what that means? As, a former, licensed, representative, and principal, for a financial services company, I have learned, and developed, an understanding, and appreciation, for what these mean, and their potential impacts. Often, I try to make others, feel more comfortable, by joking, that the difference, between, a recession and a depression, is, it’s the former, when it happens, to you, but, the latter, when I am affected! With that in mind, this article will attempt to, briefly, consider, examine, review, and discuss, these four concepts/ principles, and what they mean, and represent.

Photo by Tim Mossholder from Pexels

1. Recession: A recession is, generally, defined, as a period, of temporary economic/ financial decline, when, trade, industrial activities, and other economic indicators, are identified, in, at least, two consecutive quarters. It is usually reviewed, in terms of, the Gross Domestic Product, or, GDP, which measures, overall economic performance, in a specific nation. Often, the Federal Reserve Bank, uses several tools/ methods, to attempt to enhance activity, including reducing interest rates, etc.

2. Depression: When, the recession, becomes, even more severe, and endures, for a significantly, extended period of time, it is often, considered, a depression. We might witness, either, a specific component of the economy, which is depressed, such as housing, or industry – specific, or, an overall one. Nearly, everyone, is familiar, with the period, which began in 1929, and extended, for several years, which is referred to, as, the Great Depression.

3. Inflation: Inflation is the rate at which, a specific (or several) currency, falls, and, results, in an overall, rise in most prices of products, and services. The usual pattern, of the Federal Reserve Bank, is, to increase the costs, of borrowing money, also referred to, as interest rates. In most cases, when these increase, significantly, many individuals discover, their wages, do not keep up, with the inflation rate!

4. Stagnation: When we refer to, stagnation, in economic/ financial terms, it refers to a significant period of little, or lack of activity, growth, and/ or, meaningful development! When, this occurs, for a prolonged period of time, it generally, creates a loss of employment possibilities, and, often, more unemployment. Historically, governments use a variety of economic stimuli, to strengthen, overall economic activity, and hopefully, restore us, to a stronger, better, financial condition.

When it comes to money – matters, the more, one knows, the better – off, we might be, in being prepared, for eventualities. Learn as much as you can, for you own best interests.

Richard has owned businesses, been a COO, CEO, Director of Development, consultant, professionally run events, consulted to thousands, and conducted personal development seminars, for 4 decades. Rich has written three books and thousands of articles. His company, PLAN2LEAD, LLC has an informative website http://plan2lead.net and Plan2lead can also be followed on Facebook http://facebook.com/Plan2lead

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Monetarism In Economics

Monetarism is actually a set of views depending on the perception that the entire sum of money in an economy is actually the main determinant of economic development.

Monetarism is directly linked with economist Milton Friedman, who argued, dependent on the amount concept of cash, that the federal government must maintain the money supply relatively constant, expanding it slightly every year largely to allow for the organic progress of the economy.

Monetarism is actually an economic idea that says that the source of cash in an economy is actually the main driver of economic development. As the accessibility of cash in societies increases, aggregate need for goods as well as services goes up. A growth in aggregate demand really encourages job development that brings down the speed of unemployment and influences economic development. Nevertheless, in the long-range, the growing need will ultimately be bigger compared to supply, creating a disequilibrium in the marketplaces. The shortage the result of a higher need than supply is going to force costs to go up, leading to inflation.

Monetary policy, an economic device used in monetarism, is actually applied to change interest rates to manage the money supply. When interest rates are improved, individuals have much more of an incentive to conserve than to invest, therefore, contracting or reducing the money supply. On the flip side, when interest rates are actually lowered observing an expansionary monetary system, the expense of borrowing decreases that means folks are able to borrow even more and invest more, therefore, revitalizing the economy.

Because of the inflationary consequences which could be brought about by too much expansion of the cash source, Milton Friedman, whose job formulated the concept of monetarism, asserted that monetary policy must be performed by focusing on the growth rate of the cash source to keep economic and price stability. In the book, A Monetary History of the United States 1867 – 1960, Friedman proposed a fixed growth rate known as Friedman’s k percent rule, which recommended that money supply must develop at a continuous yearly speed tied to the nominal GDP growth as well as conveyed as a fixed percent per year. By doing this, cash supply are going to be likely to get moderately, companies will have the ability to count on the changes to the cash supply each year and also strategy accordingly, the economy will develop at a constant speed, and inflation is going to be maintained at levels that are low.

Central to monetarism is actually the Quantity Theory of money, that says that the cash supply multiplied by the speed at what some money is actually spent per year equals the nominal expenditures in the economy.

Monetarist theorists observe velocity as frequent, implying that the some money supply is actually the main element of Economic growth or GDP growth. Economic development is actually a characteristic of economic activity as well as inflation. If velocity is actually predictable and constant, subsequently an increase (or perhaps decrease) in money will result in an increase (or perhaps decrease) in possibly the price or quantity of goods and services sold. An increase in cost levels denotes that the quantity of goods and services sold created will continue to be constant, while a growth in the amount of goods produced implies that the typical price level is going to be fairly constant. Based on monetarism, variants in the some money supply will affect cost levels over the economic and long-term output in the short term. A shift in the cash supply, consequently, will immediately determine employment, production, and prices.

The perspective that velocity is actually regular serves like a bone of contention to Keynesians, who think that velocity shouldn’t be regular since the economy is actually subject and volatile to regular instability. Keynesian economics states that aggregate need is actually the answer to economic development and also supports some activity of central banks to inject more cash into the economy to boost interest. As reported previously, this runs contrary to monetarist idea and that asserts that such actions can lead to inflation.

Proponents of monetarism think that managing an economy through fiscal policy is actually a bad decision. Increased government intervention interferes with the functions of a completely free market economy as well as may lead to big deficits, improved sovereign debt, and also greater interest rates, that would ultimately force the economy into a state of destabilization.

Monetarism had the heyday of it in the first 1980s when economists, investors and governments eagerly jumped at each brand new money supply statistic. In the many years that followed, nonetheless, monetarism fell out of favor with economists, as well as the link between various methods of inflation and money supply proved to be much less distinct than almost all monetarist theories had recommended. Many central banks now have stopped establishing monetary targets, rather have adopted stringent inflation targets.

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Economics – When There’s Blood in the Streets

The time to buy is when there’s blood in the streets.
— Baron Rothchild, 1815, Member of the Rothchild banking family.

There is an interesting story about this quote. Baron Nathan Rothchild was one of five sons of Mayer Amschel Rothchild.  Mayer was the founder of the famous and incredibly wealthy Rothchold banking family.  They made Sam Walton’s kids (Wal-Mart) look middle class.

Each of Mayer Rothchild’s five sons headed up a huge merchant bank in a different country.  Nathan Rothchild headed up the Rothchild Bank in Britain.

One way the Rothchild’s made big money was by syndicating huge bond offerings for their respective national governments.  There have even been suggestions (probably untrue) that the Rothchild’s encouraged war between countries so that each son could earn huge bond syndication fees selling war bonds.  George IV is in California, and Tom is here with me in Indiana.  Maybe I should encourage a big snowball fight between the states, and then have The Boys sell ice makers to each side.  Haha!

Okay, so the year was 1815.  Napoleon had just escaped from the Island of Elba, and the French king kept sending army after army to snuff out Napoleon’s little rebellion.  Napoleon had started out with just 30 members of his old Imperial Guard, but as soon as any French force would march on Napoleon, the troops would let out a great cheer, turn around, and join Napoleon’s side.  “Would you fire on your Emperor?” he once asked Marshall Ney.  Finally Napoleon sent a message to the restored Bourbon king, “There is no longer any need to send more armies after me.  I have all the troops I need.”  Haha!

The restored Bourbon king fled, and for the next 100 days, Napoleon mobilized all of France.  He reassembled the Grande Armeee, an army of 100,000 men.  The British, the Prussians, the Austrians, and the Russian were totally freaked out.  They had just fought Napoleon for almost twenty years, and they had finally defeated him.  Why won’t this little sucker just die?!

The aristocracy of Europe was gathered in Belgium to party, dance, and divide up the spoils.  Beautiful women, in fancy gowns, danced with their handsome officers to a wonderful orchestra – until a messenger staggered into the ballroom.  “Napoleon has stolen a march on us.  He has defeated the British at Quatre Bras.  Our army is in full retreat.”  Women screamed.  Some passed out.  Officers scurried everywhere.  The Duke of Wellington, who had never been defeated in battle, famously commented, “I have been humbugged.”

Wellington marshaled his beaten, but unbroken, troops, and emplaced them on the reverse slope of a row of hills overlooking the little town of Waterloo.  Placed there, Napoleon could not accurately aim his famous artillery at them because his gunners couldn’t see the British troops.  They had to fire blind.  The next day, as the Prussians rushed to help Wellington, Napoleon sent infantry division after infantry division marching up those hills.  Each time, the British drove them back.

I really admire Wellington because, even though he was personally a cold fish, he took wonderful care of this troops.  He had them lay down to present the smallest possible target to Napoleon’s endless artillery cannonade.  The French cavalry tried charging the British infantry, but the incredibly brave Redcoats quickly formed into squares and presented the French cavalry with a bristling wall of bayonets.  Horses will not commit suicide by hurling themselves onto bayonet points, so six different cavalry attacks came to naught.

But each time the Redcoats formed square, they became a perfect target for Napoleon’s artillery.  Thousands of brave British boys were blown to pieces, and as the Redcoats formed square each time, the squares became smaller and smaller.  Finally, the British were ready to be broken.

Vive L’Empereur,” shouted Napoleon’s never-beaten Imperial Guard, as they marched up that apparently deserted hillside.  When they were almost to the very top, with victory just steps away, Wellington shouted, “Stand up!”  The exhausted and decimated British survivors rose up like ghosts out of the mist and formed their famous “thin red line.”

Napoleon’s columns were twelve men across and hundreds deep.  The dense formation was designed to punch through any enemy line, but only a few Frenchmen could fire their weapons from this formation.  Wellington’s thin red line had only two men to a file, and every man could fire.  They wrapped themselves around the head of the French column and fired volley after volley into it.  The fresh French troops were stopped cold.  “Fix bayonets!” shouted the few surviving British officers, who had bravely stood in place as their troops had lain down.  “Charge!”

The Imperial Guard broke and ran.  After the battle, Wellington made his laconic but famous comment, “It was a close-run thing.”  Four days later, Napoleon surrendered for good.

Nathan Rothchild had been hard at work as well.  His pre-assigned agent jumped onto a fast mail packet the instant the Battle of Waterloo was over, so Nathan had a jump-start on the markets.  At the time, Consols – the British equivalent of Treasury bonds – were struggling because of the British loss at the Battle of Quatre Bras the day before.  Who wants to own the debt of a country that is about to be overrun by Frenchmen?

Taking advantage of his prior knowledge, Rothchoild started to sell Consols short in huge quantities.  “Oh, my God. Rothchild knows.  Rothchild knows (that we lost at Waterloo).  Sell my consols at any price!” shouted hundreds of traders. …  A terrible run on Consols began.

Until Rothchild suddenly changed position and bought up enormous quantities of Consols for pennies on the dollar.

I am not telling you guys to run out and buy stocks because there is blood in the streets.  In three weeks, I predict that the new, hot story in the final press might very well be about how orders from China, the world’s second largest market, are down by 60%.  This may initiate the second down leg in the stock market, which I fear will bring us about 20% lower than our recent lows.

No, I wrote this article for for my private investors, urging them to snap up our hard money first trust deeds.

“Right now just about every bank in the country – almost all 4,000 of them – is out of the commercial mortgage market.  While commercial loan demand has plummeted, we are seeing some very, very attractive deals.”

“Folks, you have to be smart.  Until this crisis, 4,000 commercial banks and another 5,000 credit unions were competing against us in the small balance commercial loan market.  Poof!  They were suddenly and completely gone.  For the next few months, we have the market largely to ourselves.”

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Beer Drinking With George Tonight

Tonight (May 4th) at 5:00 p.m. Eastern Time, I am going to hold a Zoom BS session to just chat, share, and gossip about the amazing happenings in commercial real estate finance.

There is no cost to attend, but I would really like it if each of you would hold up a beer, a wine, or a mixed drink to show you truly grasp the spirit of the occasion.  This chat is supposed to be, first of all, fun; but I suspect we will all learn some interesting things as well.

There is no fixed agenda.  This is not a training class.  I’ll make a few observations about how to survive and prosper in a weird market like this, but after that, the floor is open to anyone to chat about anything related to commercial real estate finance.

To get into the meeting, please write to me, George Blackburne III (the old man), at george@blackburne.com for your Zoom instructions.

I literally get 1,350 emails every single day, seven days per week, so it is please VERY important that your subject line read, “Beer Drinking With George.”

We have 31 people signed up for tonight, and I am going to cut it off at 35.  If you don’t get an invitation, I’m sorry, but you missed the cutoff.  You’ll just have to get drunk on your own.  Darn!

I am using the free version of Zoom, so they will cut me off after only 40 minutes.  I urge those of you who have signed up not to be late.  It would be great if some of you could please bring either some hot commercial lenders to recommend or some related observations to share.  Thanks!

By George Blackburne