The Bible, in its New Testament, mentions four figures whose presence foretells the end of time and the Final Judgment.
They are known as the "Four Horsemen of the Apocalypse" in allusion to the end of time.
Each of them rode horses of different colors representing different stages or moments of that end of cycle in the life of mankind.
The Red Horseman, symbolizing war, with a great sword that allows him to bring peace on earth and people to kill each other.
The Black Horseman, who carries a scale, in allusion to the scarcity of food, symbolizing hunger.
The Pale Horseman, representing death, with authority to kill with sword and hunger.
The White Horseman, carrying a bow, which some scholars interpret as the personification of Christ, while others see him as the Antichrist.
The economy has its horsemen, messengers of the market apocalypse or traumatic cycle changes.
Recession, Inflation, Stagflation, Hyperinflation and Depression are the five stages of economic cycles that, sooner or later, culminate in Doomsday to usher in a new cycle of recovery.
However, they can combine to continue each other.
In the table above we see how each influences some aspects of the economy and markets.
Recession: Demand falls and inventories build up, so prices tend to fall. People's incomes fall as a result of the drop in activity, further accentuating the drop in consumption. These are times of low savings and job losses. Sometimes there are breaks in payment chains, which may even mean the closure of some companies, mainly SMEs.
Inflation: During inflationary periods, the demand for goods and services increases because the expectation of higher prices encourages consumers to protect their purchasing power by acquiring in advance what they may need. The supply of products, in general, is a little less than the demand, since suppliers know that with the passing of time their inventories will become more valuable. Savings are scarce because postponing purchases means buying less. Employment is boosted because, in general, labor costs lag behind price increases, making it more convenient to hire workers. The financial system can take advantage of large spreads between lending and deposit rates, which are negative, i.e. below the inflation rate.
Stagflation: Refers to an economic situation in which prices rise, but economic activity stagnates. Stagflation implies high inflation rates and low or negative GDP growth rates. It is a very difficult circumstance to resolve, especially for central bankers, as there are few tools to combat inflation and slowdown at the same time, as they are generally opposites. Demand falls, goods accumulate in warehouses, however, unlike in recessions, prices increase. This may occur due to the concurrence of some of these factors:
Increase in production costs due to inflation.
The inflationary expectation of suppliers.
The government's monetary and fiscal policy to finance public spending.
The decrease in the supply of goods and services due to the fall in production.
Obviously, these circumstances retract employment and resent the financial system that could suffer the same consequences as those of a recession.
Hyperinflation: Hyperinflation is an economic phenomenon characterized by an uncontrolled rise in prices. During hyperinflation, the prices of goods and services rise so rapidly that the currency loses its real value. This can lead to a significant reduction in wealth and a significant loss of purchasing power for citizens. This phenomenon can generally be triggered by unbridled money creation following a very aggressive expansionary monetary policy or by a sudden drop in activity. That is, when the relationship between GDP and monetary base is permanently and violently modified, either by increasing circulation or reducing production. Historically, it usually occurs in times of war between countries, due to the high expenditure caused by the conflict, in political crises and in serious moments of economic depression.
During hyperinflations, those who offer products prefer to maintain inventories because they earn more without selling than by selling. The common denominator is the uncertainty about the replacement of merchandise that might not be available or might be much more expensive. The lack of activity generates unemployment and important losses to the financial sectors since in hard currency terms they will see their local positions devalued.
Depression: As in recessions, economic depression represents the fall in all the parameters we are analyzing, however, in this case it is much more accentuated. The collapse of the financial system is the typical indicator of this circumstance. The loss of value of financial assets, the increase in the cost of money, insolvency and bankruptcy of companies unable to pay their debts, distrust in local banks and government intervention by rescuing banks or establishing economic stimulus policies are some of the manifestations of this dreaded stage.
Consumers expect the prices of products to continue to fall, so they postpone their consumption, causing suppliers to lower prices even further in order to be able to meet the minimum costs of survival.
In each case there is a cooling or overheating crisis in the economy. Neither of the two realities are positive for the sustainable development of a country.
Developed economies are the ones that have managed to overcome them with greater speed, prolonging the stages of growth, which is why these five horsemen are the terror of those who lead the destiny of the finances of any country.
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