Factors that influence the financial cycle

The economic crisis cannot be avoided because the balance of supply and demand cannot be achieved in the short term. This imbalance has a certain political orientation. Moreover, because of the irrational behavior of consumers and investors, cyclical crisis occurs and causes extensive damage. The factors that will influence how long it is before the next cycle begins are summarized as follows.

First, the fluctuations of the internal and external environment will shorten the time of the financial cycle. The economic cycle is rooted in some fluctuations outside the market economic system such as war, revolution, choose, price of oil, a gold mine, immigration, scientific breakthroughs and technological innovation, even sunspots and weather and so on. Internal theory can be used to explain the reasons that lead to the periodic cycle up and down fluctuations of the socio-economy from the operational mechanism of the factors of the market economic system itself. These factors include the investment, consumption, savings, money supply and interest rates (Pons & Fourati, 2003).

Second, the monetary cycle has an impact on the financial cycle. Banking system alternately expanding and tightening credit will cause the economy cyclical fluctuations (Ergungor, 2003). Due to the multiplier effect of money, when the banking system reduces interest rates and expands credit, the businessmen will increase the loans, which lead to the production expansion and increasing revenue. However, the improvement of annual revenue would lead to the increase in demand and prices of goods. So the level of economic activity increases and the economy has entered into the boom phase.

Finally, excessive investment will accelerate the arrival of the recession. The economic cycle is rooted in excessive production investment. This theory holds that increased investments promote economic prosperity (Levine, 2002). That prosperity is first expressed in the increase in demand for investment goods as well as the rise of the price of investment goods (Levine, 2004). This has further stimulated the investment in capital goods. The over-development of the production of capital goods has caused a reduction in the production of consumer goods and induced the imbalance in the economic structure. Too much production of capital goods are bound to cause excess capital goods, so there is an overproduction crisis, and then the economy enters into a depression (Chandler, 2004)