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Is the boom-and-bust business cycle a thing of the past? – News Puk

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Is the boom-and-bust business cycle a thing of the past? – News Puk
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The rise in international trade has been a significant factor in offsetting the slowdown in domestic demand as businesses can now reach customers around the world via the Internet. This has made the economy more stable and less sensitive to interest rates, says Mr Kelly. On the other hand, many in the economic profession are not so sure about the state of the economy.

When considering the risks of a recession, Professor Thomas Herndon of the City University of New York’s John Jay College does not see the growing sophistication of big business as a long-term solution. He pointed out that there are several causes for the declines that are not directly related to financial stability. He referred to the work of Michal Kalecki, a 20th-century Polish economist, who argued that business leaders could try to maintain full employment by implementing restrictive economic policies to assert their influence.

Mr. Herndon also noted that old-fashioned financial bubbles and credit cycles remain a threat. James Knightley, chief international economist at ING, said eliminating the economic cycle would be central banking’s ultimate goal, but it remains a challenge. He also cited the Federal Reserve’s innovative use of tools such as credit facilities to keep credit flowing and stabilize bank balance sheets as a way to reduce downside risk.



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