Central Government lending practices are behind business cycles

   Business cycles are not a natural state of affairs as before. They used to be. They are not so today. Back during the gold standard, banks would normally lend more money then they held in gold reserves. Because the money supply was not tracking gold output, the economy can grow even with a stagnant supply of gold. Even when the standard existed, the money supply always deviated from gold reserves because trying to finance economic expansion through the slow growth rate of gold was just hair wringing.

  Thus the economy often grew whenever banks behaved less responsible and accountable to their clients who placed deposits in gold. The production of gold certificates and not gold reserves thus helped generate massive economic growth.




  The economy crashed whenever there was a run on these major banks, meaning people rushed to withdraw their gold with the certificates they held. The banks never having the gold to pay for the certificates had no choice but to slip away as the overall economy crumbled from having no further source of financing.

  People, having short memories, eventually get over their financial losses and begin placing trust in these financial institutions again. The lending policies where more certificates were printed than reserves held in gold helped rejuvenate the economy again.

  But this is 21st century, there is no gold standard. There is no ocean, it is just an artificial wave pool. People do not track the invisible gold reserves of their banks, they track central government interest rates and what the lending policies are and are expected to be.