The Boom-Bust Cycle: A Product of Easy Money Creation:
In the world of economics, the "boom-bust" cycle is a recurring pattern of rapid growth followed by sharp downturns. This cycle is no accident—many believe it's a product of how money is created and managed. As we've discussed, modern money creation is as simple as the push of a button. This process, which Ray Dalio outlines in his famous video How The Economic Machine Works, is intricately linked to the cyclical nature of our economy, and some argue that it’s even designed to perpetuate these cycles.

See Ray Dalio's Video here https://youtu.be/PHe0bXAIuk0

The Magical Money Button: Creating Money and Fuelling Booms:
When banks create money from thin air by issuing loans, it injects new funds into the economy, sparking booms. With low interest rates and easy access to credit, individuals and businesses borrow more, spend more, and invest more, driving rapid economic growth and pushing asset prices skyward. This creates an illusion of wealth and prosperity—like a financial adrenaline rush—where everyone seems to be winning. However, this growth is often built on shaky foundations, relying on money that isn’t backed by anything tangible.

The Illusion of Wealth: Fiat Money and Inflated Asset Prices:
The money created during booms is fiat money—money that has value because a government says it does, but isn’t tied to any real assets. As more money floods the economy, its value begins to erode, leading to inflation. This inflation primarily affects asset prices, like real estate and stocks, which inflate beyond their actual value, creating economic bubbles. These bubbles, like overinflated balloons, are destined to burst.

The Inevitable Bust: Debt and Economic Downturn;
As Ray Dalio explains, the boom inevitably leads to a bust. When the economy overheats, central banks often raise interest rates to cool things down. This makes borrowing more expensive, and the debt accumulated during the boom becomes a burden. Spending slows, businesses cut back, unemployment rises, and the economy contracts. The bubble bursts, and what was once easy money now becomes a crushing weight. This downturn disproportionately impacts the working class, who rely on wages rather than assets, leading to widespread financial hardship.

By Design? The Wealth Transfer in Boom-Bust Cycles:
Here’s where it gets even more concerning. Many believe that these boom-bust cycles aren’t just a natural outcome of economic forces, but are actually by design—a mechanism that creates inflation and enables a massive transfer of wealth from the 99%, the working class who sell their labour for cash, to the 0.1%, the elite asset holders. During the boom, asset prices rise, benefiting those who own stocks, real estate, and other investments—the wealthy. But when the bust hits, it’s the working class who suffers most, as jobs are lost and wages stagnate. Meanwhile, the wealthy, who have the resources to weather the storm, often end up buying distressed assets at a discount, further consolidating their wealth.

Shifting Wealth from the Many to the Few:
This cycle effectively shifts wealth from the many to the few. The boom inflates asset prices, benefiting the elite, while the bust creates opportunities for them to buy up assets on the cheap. The working class, on the other hand, sees their savings eroded by inflation and their opportunities diminished by economic contraction. It’s a system that seems to perpetuate inequality, ensuring that the rich get richer while the rest struggle to keep up.

Footnote: A Serious Warning:
While this narrative started with a light-hearted take on the ease of money creation, the implications are serious. The cycles of boom and bust, driven by the way money is created and managed, contribute not just to economic instability, but also to a profound and ongoing transfer of wealth from the majority to a small elite. Understanding this process is crucial for anyone who wants to navigate the modern economy. Without significant changes to how money is created and how economic policies are implemented, we risk perpetuating a cycle where the highs benefit the few, and the lows devastate the many. The ease of creating money might make the highs higher, but it also makes the lows deeper and more painful—especially for those least equipped to handle them.