Business cycles, financial crises, and short-run economic

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BUSINESS CYCLES, FINANCIAL CRISES, AND SHORT-RUN ECONOMIC economic cycle crisis
Economic history shows that economic growth is never smooth and uniform. Over several years of recovery of economic activity and prosperity comes decline or even panic or crash. Economic cycle covers various aspects of society. It penetrates everywhere - in manufacturing, construction, employment, income, stock market, and in politics. Even non-economic phenomena as birth and marriage are feeling the full crisis.
The economic cycle in different ways and to varying degrees, affects individuals and certain sectors of the economy. For example, most of the recession affected workers and industries producing capital goods, consumer durables, construction. Industries producing consumer goods short-term use is usually less responsive to decline. Entrepreneurs are based on certain assumptions about the future when making decisions about investment and output. If they believe that the next year will bring recession, it will try to reduce the investment now. When, on the contrary, expect a revival and a significant rise in prices, then hurry to purchase goods, to expand production and construction.
To entrepreneurs of all developed countries constantly face the problem of win-win capital investment, so the study of business cycles in terms of predicting the increase or decline in economic activity is one of the most important tasks of the modern economy
The economic crisis - is a significant imbalance in the economic system. This eventually leads to an imbalance of the economic system overall.
The result of the economic crisis is the reduction in real gross national product, mass bankruptcies and unemployment, decline in living standards. In a market economy, crises are inevitable: regular, regularly recurring crises are indispensable phase of cyclical development of any system.
World crises affect all countries, they create conditions for transformation of the system - either move it to a new qualitative state, or death, decay and replacement of new, more efficient system, so it is important to prompt recognition and effective crisis management
The theme is of great interest, as it relates to the most important economic processes taking place in the world, which are accompanied by losses and tear of normal relations in production and market relations. Many generations of researchers have tried to solve the mystery of the cyclical fluctuations of the market economy

Chapter 1. The economic cycle. Phase of the crisis

The economic cycle

Crises
The process of capitalist reproduction has a cyclic form. Production phase of the crisis passed, goes into a state of depression (Stagnation), followed by a phase of recovery, is replaced rise. These four phases constitute the industrial cycle. Its main phase is a crisis, that it creates a cycle. All other phases as it is derived from

crisis. Without crisis there is a cycle. Shifts from the state, characterized by the transition from one phase to another, is to be distinguished temporary, relatively fast flowing changes in the terms and scope of production and marketing.
Crisis, causing decreased prices and reduced production, contributes to violent scale equation of supply and demand. Part of the social product, do not sell, die physically, new mass of goods and services received at a reduced level. Massive bankruptcies also lead to a reduction in production. During the crisis, different companies react differently to reduce demand and decrease prices. Companies with advanced technology, as a rule, larger, easier to tolerate blows of the crisis. Even when weak technically enterprises suffer losses due to large enterprises perfect technical base and relatively higher productivity continue to profit.
Companies with a large capital and significant financial reserves easier to adapt to new conditions. Reducing production costs, they continue to make a profit. Provisions to reduce costs are reduced to lower wages and to introduce all kinds of improvements. Wages fall below the cost of labor, which takes place during the crisis, leads to cheaper labor to capitalists. It is circumstances keep lowering the rate of return is inevitable in times of crisis. Bankruptcy weak enterprises lead to increased overall productivity, even if the nature of the technique has been no change.
Ruined, as a rule, companies that have labor productivity below the public. They cease to take part in determining the average level of productivity. Because of this social labor productivity is increased, which lowers the cost of products. Falling prices entails a reduction in the cost of the elements of constant capital, including its core.
Due to this fall in the rate of profit, which occurs under the influence of lower prices for goods weakened.

Depression

Following the crisis is depression. Depression is characterized by a low level of production, which has ceased to decline, but remains generally at a level that was achieved during the crisis. The scale of unemployment also considerable, as the final stage of the crisis. However, a number of other indicators there is a significant difference between depression and crisis.

Phase of the crisis is characterized by a decrease in prices, increasing
unemployment and interest, increased inventory during the depression of these phenomena is not; prices more or less stable, inventories are not growing, lending rate stands at a low level.
Recovery
Phase of recovery is characterized by increased levels of production, some reduction in unemployment, a slight increase in prices, the expansion of credit. Is changing the structure of social production. Start executing orders for new
the equipment. During the crisis, when production cutbacks in trade inventories are reduced.
This helps to reduce the gap between supply and demand. Stock prices, which fell sharply during the crisis, become stable. Starts increasing demand for elements of fixed capital. This demand is beyond the scope of individual branches and chain connection begins to capture all sectors of social production. Stagnation of simple reproduction is replaced by a spiral of extended reproduction. But this spiral unfolds spontaneously. Therefore, in a period of revival foundations of future imbalances.
The Climb
The revival is replaced by enthusiasm, which usually is hectic. Excess production levels achieved in previous cycle, is a defining feature of recovery, distinguishing it from recovery. Other signs of recovery - the price increase, reducing the size of unemployment, an increase in credit. The rise in prices during ascent is common to all industries, but sobenno sectors producing elements of fixed capital. Demand for elements of fixed capital in this phase is much greater than the supply.
Raising the technical structure of social capital requires and encourages more rapid growth of production, means of production, compared with growth of production - commodities. In the same direction is valid and increase the rate of accumulation, which means above all the growth of the constant capital, the material elements of which are made in the I unit. Finally, during a lifting the same direction, and the level of prices of the means of production. Production facilities production outstrips production of consumer goods to a greater extent than required by normal proportions of expanded reproduction. Thus creating conditions for the development of multilateral imbalances.

Spontaneous transition from one phase to another

Organically interlinked phase cycle - one moves the other. Separate phases

may have different lengths depending on the specific conditions of a country in a given period of time. But there a common trait peculiar to the development cycle. It is that periods of crisis and depression over time are on average relatively longer duration, and phase of recovery and the climb - more short-lived. It Is especially characteristic of modern capitalism.
Activities monopolist capitalist leads to the fact that the process of mass renewal of fixed capital, stimulated the crisis is not always deployed in significant extent, whereby prolonged depression phase, and recovery is relatively sluggish, and the crisis could occur prior to the Climb.

The crisis as the main phase of the economic cycle

The crisis - a severe disturbance of the existing equilibrium, due to the rising imbalances and economic indicators. In this interval there is a decline in aggregate demand and, as a result, the excess supply. Since demand is reduced, there are problems with the implementation of the finished product and increased unemployment. There is a reduction of all economic indicators. All types of income, including wages, investments, profits, and prices begin to decline rapidly. Because of the paralyzed capital stored as unsold goods, there is an acute shortage of funds to pay for fixed costs, therefore increasing rapidly charge for credit - lending rate. Rates of stocks and bonds, and other securities tend to decline, so there comes a wave of bankruptcies and mass closures. The crisis ends with the onset of depression ..

"Classical" economic crisis did not mean the concept and desired dramatic phase in the capitalist economic system is characterized by fluctuations and negative phenomena interference. In this sense, the concept of crisis for a long time has a strong place in the subject of the theory of conjuncture in the development of the economy. But the "classical" definition of the crisis was seen more multitasking concept of "economic crisis". On the economic crisis, by definition Mechlapa referred to in the event that there is not the desired state of economic relations, not portable emergency large segments of the population and manufacturing industries.
Market, absorbent freely all manufactured goods, one point is crowded. Products continue to arrive, while demand decreases and finally stops altogether. Meanwhile, everywhere there are still huge stocks of goods. However, many companies continue to work, throwing on the market more and more mass products. There is a drop in prices, growing distrust of the actors of the market economy, the bill is no longer play the role of securities. Many businesses go bankrupt, nevertheless ruin weak technically enterprises leads to an increase in the overall level of production efficiency. Center of economic activity shifted to the money market due to increased demand for financial resources due to the need to repay debts. Growing demand for money capital provokes a rise in interest rates, which will inevitably lead to further depreciation of securities, primarily shares. Curtailment of economic activity is accompanied by a decrease in employment and rising unemployment. The crisis gives rise to a new economic cycle, or interrupt the phase of recovery and growth.
In a crisis dominates the lack of time and decisions. Evaluation of the limited time for decision-making depends on the state of the crisis and the resultant lack of time and urgency of solving problems.
When the crisis is an important management issue. High complexity of crisis management allows one hand to influence the development of autonomous processes and covers the other hand the specific problems of governance: the need for its high quality and there are only two options for the final result of management actions, ie, possible or bankruptcy, or success in overcoming the crisis.
The economic crisis is divided into different stages. Kristek characterizes the crisis stage of the process from the point of view of the possibilities, the potential to overcome the crisis and early warning about it.
The economy is considered a considerable number of theories of crises, here are the main ones:
Marxist theory. Marx was the first scientific proof of the general methodological principle, according to which the crisis in the economy considered as a deviation from equilibrium. These views were developed in robots Kondratyev, Hicks, Arrow. Possibility of a crisis is detected even in simple commodity production. The main reason - a sharpening of the main contradiction of commodity production - between social production and private appropriation of the results. This contradiction manifests itself in the contradictions between labor and capital, production and consumption, between the organization of production in individual enterprises and in society at large.
Monetary theory (Friedman, Schwartz, Hayek) explain the reasons for the crisis by expansion and contraction of bank credit to the change in the money supply.
The theory of underconsumption. Sismondi recognized the possibility and inevitability of overproduction. Causes of the crisis - insufficient intake, reducing demand (goods produced more than necessary). Tugan-Baranovsky supported him, Kautsky. Rodbertus considered not production, and distribution. Believed that crises appear as a result of under-consumption caused by the uneven distribution of national income.
Psychological theory of Keynes. Change lift crises depends on the change of optimistic to pessimistic capitalists, underconsumption due to the propensity of workers and capitalists to save funds for increasing their incomes and wages.
Samuelson theory, all be divided into: externalities (external) - causes of the crises seen in the factors that are outside the economic system: war, revolution, population growth, scientific discoveries, the discovery of gold mines, as well as internalising (internal) - causes of crises - in the system.
Crisis is a destructive force (broken abnormal proportions in the national economy) and a recreational function (drop in prices makes production unprofitable, output - in the renewal of fixed capital, its active part, which will reduce the cost of products and make it profitable - to go to the next level production). The new technique is the material basis for renewal of production and raising it to a higher level.

Different types of crises

In economic theory to distinguish two main types of non-financial crisis in the markets, ie markets for goods and services:

Underproduction crisis occurs when the demand for goods and services exceeds their supply, which leads to a deficiency. Such a situation, depending on what products or services are becoming scarce, can lead to different consequences - up to starvation or epidemics (in the case of an acute shortage of food or medication). The main cause of the crisis of underproduction are natural disasters, war, and government restrictions production. But due to the unlikely occurrence of crises of this kind, the authors propose to focus all their attention on the following form.
Overproduction crisis occurs when the supply in the market of goods and services exceeds the demand. Overproduction crises lead to a decrease in the use of production resources: an increase in the number of unemployed and stop factories.
The volume of production in the long run increases. However, economists have long noted that the increase in production is not constant - it is subject to cyclical laws. In other words, for some periods there is a very rapid growth, which is replaced by slower growth - or even reduced production. These observations led to the concept of cyclical economy, which is recognized by all economists, but explained them in different ways. Characteristically, the crises of overproduction occur at the peak of business activity and are part of the process cyclicity. Therefore it is not surprising that a variety of views on the process of cycling led to a different understanding of the causes of the crises of overproduction.
Classical School of Economics. The problem of overproduction has been determined in the political economy of Adam Smith and David Ricardo. The central place in the consideration of the crisis of overproduction "Classic" Say's Law holds, under which the value of the goods is established comprehensive income, which in turn buys goods of corresponding value. In other words, aggregate demand is always equal to the aggregate production, which means that the "system" of overproduction in all markets simply do not exist. However, representatives of the classical school of economics recognizes the possibility of a temporary situation as a result of overproduction "mistakes" producers at "guessing" consumer preferences. However, the situation of overproduction may arise only in selected markets.
Keynes's theory. In the first half of the last century, John Maynard Keynes, summarizing the ideas of some other economists developed the theory that "attributes" all causes of crises of overproduction demand. Keynesians believe that aggregate demand may not provide all consumption goods, which makes the economy. The basic idea is the so-called paradox of thrift, according to which, if consumers start saving instead of consumption, then each individual customer as profitable to accumulate. As a result, at the macro level, this leads to a decrease in consumption or aggregate demand, causing, according to Keynes's theory, without state support the crisis of overproduction, which in this case can be called a "crisis of underconsumption."
Marxism. Marx proposed several models that describe a market economy with a focus on different aspects. However, experts on the teachings of Marx pointed out that an integrated theory of crisis in his works are released.
Interesting concept crises Marx considered the concept of insufficiency of effective demand. In general, the idea is to ensure that the capitalist, producing goods, always sends only a fraction of the cost of their workers in the form of wages, leaving the remaining itself in the form of profits. This leads to the fact that the workers do not have sufficient funds for consumption of all goods and the capitalist himself unable to consume all the rest. For a while, the capitalist directs the "surplus" to expand production (to invest), it helps to temporarily balance production and consumption. New investments lead to further expansion of production, and the cycle repeats, but sooner or later there comes a situation where there is an imbalance between the amount of wages and the amount of consumer goods (the crisis).The paradox lies in the fact that the increase in savings in the hope of protecting themselves against economic shocks and leads to the fact that these shocks occur. Such phenomenon is sometimes called self-fulfilling expectations.
Monetarism and post-Keynesianism. In contrast to the ideas of the representatives of the classical school of economics, in which Say's law suggests almost ideological barter relationships, monetarists focus on the cash component of the exchange, and, consequently, on the credit system. Overproduction crises associated with the credit cycle. For example, the reduction in lending may lead to a decrease in effective demand and the imbalance between supply and demand. Reduction in lending may occur, for example, in a wrong monetary policy.
Some post-Keynesians believe causes of the crisis of overproduction crashes credit and speculative bubbles, in other words - the financial crisis. After the collapse of certain market bubbles can occur a sharp jump in people's behavior - from a state where costs exceed the revenues to the state when spending less income. Such a jump at the macro level leads to a reduction in aggregate demand, which is less than the aggregate supply.
The theory of real business cycles. Proponents of this theory believe that the periodicity of growth and decline in production is a natural feature of the mechanisms of market self-regulation. The crisis itself is viewed as an inevitable stage of "purification" and reallocation of resources.In addition to the basic division of crisis, there is also a secondary, depending on the nature of economic downturns, the coverage of the various areas or sectors of the economy is necessary to distinguish the following types of economic crises: a cyclic intermediate, structural, partial, branch.
Cyclical crises - a recurring recessions of social production, causing paralysis of business and labor activity (activities) in all spheres of the economy and giving rise to a new cycle of economic activity.
Intermediate crises - a sporadically occurring downs of social production, which at the time of interrupt stage of recovery and growth of the national economy. In contrast to the cyclical crises they do not give rise to a new cycle, are local in nature and of short duration.
Structural crises associated with a gradual and sustained increase of inter-sectoral imbalances in social production and are characterized by a mismatch existing structure of social production changed conditions of effective use of resources. They cause long-term shocks and require permission for its relatively long period of adaptation to the changing conditions of the process of social reproduction.
A striking example of the global structural crisis can serve as an energy crisis that developed in the mid 70s., Which required more than 5 years for the adaptation of national economies of the industrialized countries to the new structure of energy prices (price spike exceeded 5.4-fold increase). As a result, technologically and financially, economically and national economies were forced to orient and adapt to the industry and the production of energy-saving technologies and changes in the structure of consumed energy.
Partial crises are associated with a fall in economic activity in the major fields of activity. In particular, we are talking about the monetary, banking, stock and currency markets. World currency crisis of the 70's. As we know, led to the transition from the Bretton Woods monetary system in Jamaica agreement in 1976, under which the gold was no longer serve as the world's money and become one of the products. Well-known and biggest banking crisis in Germany in 1932.
Sectoral crises are characterized by a decline in production and curtailment of economic activity in one of the industries of the national economy. History is full of such crises most evident in the coal, steel, textiles, shipbuilding industry.Seasonal crises are caused by the influence of climatic factors that disrupt the rhythm of economic activity adopted. In particular, the delay in the onset of spring can cause a crisis in public services due to lack of fuel.
Global crises are defined as coverage of individual sectors and spheres of economic activity on a global scale, and the entire world economy.

Chapter 2. The emergence and prevention of problems of economic crisis

The causes of crises and their role in the socio-economic development

Causes of the crisis may be different. They share the objective associated with cyclical needs modernization and restructuring, and subjective, reflecting the mistakes and voluntarism in the management, as well as natural, characterizing the phenomenon of climate, earthquakes and others.

Causes of the crisis may be external and internal. The first related to the trends and macroeconomic development strategy or even the global economy, competition, the political situation in the country, the second - with a risky marketing strategy, internal conflicts, shortcomings in the organization of production, the imperfection of management, innovation and investment policies.
In the understanding of the crisis are of great importance not only his reason, but a variety of effects: possible update of the organization or its destruction, recovery or emergence of a new crisis.
As the socio-economic system there is increasing the role of the human factor in crisis its development, which means the crisis is no exception, not fight against it, and the foresight and confident, timely and, where possible, painless his permission.
Crisis development - it is not the absolute absence of crisis, and the presence of such crises that are successful momentum, from the perspective of human development. Purpose and interests may be only a man. They are the basis for the recognition and management of crises to overcome them.
The conclusion is that the causes of the crisis nature of economic development rooted in the conflict conditions of production and the conditions of implementation, in the contradiction between production, seeking to expand and do not have time for him increasing effective demand. Significant changes in aggregate supply and aggregate demand are found in the economic crisis, which is not only a violation of the proportionality of social production, but also the impetus for equilibrium and balance the economy. Cyclical movement mechanism acts falling prices (or depreciation of fixed capital and lower wages).

The consequences of the economic crisis

All economic crises have a certain - sometimes paradoxical - effect on the state of public institutions, society, culture and even fashion.

Traditionally, in times of crisis the state structures are more competitive in the labor market. The state, in contrast to commercial structures, always has at its disposal the financial resources and can guarantee permanent officials pay and benefits. Even if the state wage below the "business", many professionals opt for the state, because it promises greater stability (we know that government agencies conduct downsizing much less private companies). In view of this, the popularity of public works significantly increased in times of crisis. In view of this, the popularity of public works significantly increased in times of crisis.
With the economic crisis, public institutions often become more corrupt. It becomes a natural consequence of the growth of their influence on the economy. It is up to the officials often depends the future of commercial structures: for example, the distribution of government contracts or financial assistance. This creates a breeding ground for corruption.
Another manifestation of the economic crisis is the growing popularity of military service in the states where the army is translated by a professional footing. Young people, who turns out to be less likely to find themselves in civilian life, with more likely to sign contracts with the army. One of the consequences of economic problems is the growing popularity of religion.
The crisis usually leads to a decrease in the popularity of restaurants, bars and cafes that sell alcohol, but it does not promote sobriety. Alcohol consumers start buying cheaper drinks in shops, and prefer cheaper grades. At the same time people drink more - in order to relieve stress and forget. Many are beginning to drink and people who before the hard times are not fond of such a leisure activity.
Traditionally, the economic crisis leads to a decrease in the number of tourists. The logic here is simple: with a decrease in income and rising unemployment people have less free money that they can spend on recreation and entertainment. However, this dependence is not absolute. For example, the University of Queensland analyzed the effects of the Asian crisis of the late 1990s, the local industry of international tourism. As it turned out, the number of foreign tourists visiting these countries actually declined, but in those countries that devalued their currencies, a sharp decline was not observed, and the market recovery began unexpectedly early.
Traditionally, one of the first victims of the crisis becomes culture. Musicians, actors, artists, architects are faced with a sharp decline in orders. However, the impact of the crisis on culture is not limited thereto.
Conclusion is that every economic crisis leads to changes in lifestyle and worldview of people. Sometimes these changes are short-lived and unimportant, sometimes - a very serious and long lasting. Traditionally, the economic crisis leads to a decrease in the number of tourists. The logic here is simple: with a decrease in income and rising unemployment people have less free money that they can spend on recreation and entertainment.

Ways out of the economic crisis

Crisis management can and should be effective. To do this, it is important to deal with different aspects of the process. Manage follows:

- Assets (liabilities) of the enterprise;
- Stages of business - processes (sales, production, procurement, accounting);
- Programs to protect the property and safety of the business;
- Staff (including the formation of human resources policy, social issues, relations with trade unions);
- Programs build relationships with shareholders, partners, public authorities;
- Information support programs (including bringing to the attention of the personnel information about the plans, methods and principles of management, as well as bringing the socially significant aspects of the work to the general public).
Conclusion of this paragraph is that the way out of the crisis always depend on the reasons which have caused this situation. The main goal of the state was in a quandary, the transition to normal, normal operation. To do this, you must pay off all debts. It's hard enough in a state of insolvency, but possible. Should develop a plan to improve the economic activity of the state. It is necessary to analyze the state of enterprise resource for today and the future opportunities of the company. If possible, obtain a financial or commodity assistance the state can pay off debts to be involved in the production.
Conclusion

The capitalist crisis of overproduction, the history of which begins with a win large-scale machine industry, continues to this day, however, the specific forms of crises, and all of the industrial cycle, historically not remain unchanged. They are influenced by many factors. Among these factors in the modern era is very important to state regulation of the economy, special anti-crisis measures, which carry the capitalist states to alleviate crises, which is very important for the bourgeoisie in the context of growing class struggle, wins world socialist economic system, likvdirovavshey crises in the economy.

As would be much as these events, no matter how they have changed a specific picture of the industrial cycle and during the crisis, these measures, as experience shows, can not undo the crisis itself, cyclic forms of capitalist reproduction. While there are a capitalist form of relationship sobstovennosti crises insurmountable.
Crises, clearly shows that it was time to bring the relations of property in accordance with the nature of production.
Only the abolition of capitalist property and its replacement by a socialist property, the nature of modern social production, destroys and creates the possibility of crises continuously expanded reproduction. This theoretical position has long put forward by Marxism-leninnizmom fully confirmed the practice of socialist construction