The forewarning by experts, including Dr. Umer Chapra, about the global financial crisis well before it actually occurred was not prophetic, it was merely a scientific conclusion based on the projection of economic trends. The symptoms of the impending crisis had become evident to the trained eyes of the economists before it was accepted by the political establishments the world over.
Similarly, we cannot say that the crisis period was actually a past event. The symptoms exist and the domino-effect continues although the political establishments have managed that these are not now discussed in the open and debated heatedly as was done during the so-called financial tsunami period.
The world continues to be in the grip of the crisis although the general and overwhelming masses who are at the receiving end of the ills of the crisis-in-continuation may have accepted these as fate-accompli. In fact, cyclic fluctuations in economy, popularly known as business/trade cycle, have come to be accepted as a necessary characteristic of an interest-based capitalist economy.
TRADE CYCLE
Alternation of periods of prosperity and depression of good and bad trade is known as trade cycle. Keynes described that a trade cycle is “composed of periods of good trade characterised by rising prices and low unemployment percentages, altering with periods of bad trade characterised by failing prices and high unemployment percentages.”
We witness wave-like fluctuations in employment, income, output, and price level. Such waves like fluctuations in the indicators of economy are witnessed more or less globally. Periods of good trade in economies may be termed as expansions and the bad trade may be understood as contractions. These two phases follow each other, one period giving way to the other. The phases of contraction and expansion recur frequently and in fairly similar patterns. A full trade cycle comprises expansion, recession, contraction and revival. Such sequence of changes is recurrent but not periodic.
During expansion periods production and prices increase and interest rates come down. During recession production and prices come down and interest rates move upward. The period between expansion and recession is characterised by the crisis of confidence of consumers resulting in shortfall in demands and the consequent bankruptcies of business entities. Finally, a host of steps taken by the political establishments, in the nature of preventive and breakdown maintenance, aimed at building consumer confidence and providing liquidity in the economies, lead to the period of recovery.
A note of caution is needed to be mentioned. One period of good trade called the expansion of business is not as good for the consumers of an economy, the silent and hapless masses, as the previous period of expansion. The consumers are always at the receiving end of the malaise. Their miseries keep on increasing. Prices go on rising as the average price level in every new period of economy, the good days of trade, is always higher than that of the immediately earlier period of expansion. The interplay of interest in the economies leads to this situation. The gap between the real economy and the virtual economy go on increasing. As we have noted earlier ‘higher the gap between the real economy and virtual economy severer shall be the turbulence in the market.’