Business Cycles, Recessions, and Depressions

It is so tough for economists to predict the business cycle because it is constantly changing. On page 2 it states, "Business cycles and market cycles have a lot in common....Business cycles and market cycles reinforce each other....These imbalances inevitably unwind. Just as people often get sick faster than they get better, bear markets are more violent than bull markets and unemployment rises more quickly than it falls. The event that ends these imbalances and thus the business cycle is seldom the same". A bull market is a market in which share prices are rising, encouraging buying. A bear market is a market in which prices are falling, encouraging selling. A recession is a period of temporary economic decline during which trade and industrial activity are reduced, generally identified as by a fall in GDP in two successive quarters. A recession becomes a depression, as stated on page 5, "Depressions are like plagues: devastating, rare, and only dimly understood until after the fact. They occur when the economy's normal recuperative mechanism fails to engage; the bungee cord breaks. The usual culprit is a broken financial system. Often, an investment boom turns to bust, leaving businesses and consumers with a glut of unneeded buildings and equipment that depresses future spending". The cause of these economic patterns have differed through our history in many ways. "Long run growth drives our standard of living. In the short run, the economy goes through regular cycles of expansion and recession. These cycles are driven by how much consumers and businesses spend, which in turn depends a lot on their view of he future. Bullish expectations boost investment, stock prices, and lending all of which feed back to the economy. Eventually, though, expectations get ahead of fundamentals, creating imbalances. These imbalances come undone usually with a nudge from the Federal Reserve, producing recessions. Recessions create pent up demand. Low interest rates eventually release that demand bringing the recession to a close. Sometimes though this natural recuperative process fails because a broken financial system dams the flow of credit. Then, a recession may become a depression". So basically, all in all, our economy sucks.