Navigating the Boom/Bust Cycle

CHAPTER 9

International Cyclical Impacts on Multinationals and Small Businesses

To set the stage for understanding cyclical developments around the world, we have seen in Chapter 2 that the U.S. economy has experienced recurring business cycles since the early days of the republic. Before the Federal Reserve was created in 1913, banking panics occurred frequently. The cause of 19th-century banking panics is attributed to the fractional reserve banking system, which creates new money that businesses, farmers, and individuals eagerly borrow.¹ Some of the new money was used for speculative purposes, such as land purchases, which drives up the price of many assets including commodities creating an unsustainable boom. As the new money diffuses through ...