Being the age I am, I have lived through many "economic cycles". In fact, in my lifetime, the UK economy has fallen off its bike so many times I am a little surprised our small island's financial "wheels" have not been permanently buckled.
Of course, every time we are in an economic trough, it seems unlikely we can ever get out of it. This can be slightly depressing until one remembers that we always do escape such lows. Even more surprising (unless you are my age) is that when we reach the high ground again, no one under 40 believes we will ever find ourselves in a trough again!
Anyway, at the moment many politicians are telling us we must tighten our belts and accept an austerity programme for the next X years (X has yet to be defined but will no doubt tend to get smaller as we near the next UK General Election).
What politicians will not tell us of course, is the truth. The truth does not create a palatable election manifesto.
I am too old and wise to want to get elected to anything but the committee of my local WI, so I can afford to risk depressing you with honesty.
The truth is that until recently Western economies had created a nice affluent niche for themselves, an affluent Nirvana envied by the 80% of the world's population who did not live in the US or Western Europe.
How did the West get affluent?
By making the North, South and East poor!
The start of real affluence in the West coincides with the Industrial Revolution. This revolution was the start of mass manufacturing, where raw materials are processed and the resultant "products" sold to those who can afford to buy them.
The rub is of course that for mass manufacturing to work financially, there needs to be masses of consumers with money in their pockets to buy the exciting new products.
That is why our economies needed banks. Banks take the deposits they receive and multiply them to create potential loans for their customers. This "multiplier" effect is sustainable because banks know that only a small percentage of the cash invested with them is likely to be called in by the investors in any given period of time.
This wonderful system of wealth creation is called "fractional deposits". In other words, the banks only have to keep on deposit a fraction of the money lent to them because they know investors are not likely to want their money back any time soon.
Sometimes of course this all goes briefly wrong, as with Northern Rock, when too many investors wanted their money back at the same time. That's called "a run on the banks" and it's scary if you don't realise it is all a game.
And it is a game.
Because, you see, the banks will never really be allowed to run out of money. When it looks like they will, the Bank of England can just print some more notes and issue them to the banks. The Bank of England is the "bank of last resort" because it literally has a licence to print money.
However, no one likes to admit this process is just about printing money, so a new phrase, "Quantitative Easing", has recently been coined to make it sound more "official" and therefore solid and sensible.
I know you will be thinking "but that cannot work - eventually you will have to pay with "real" money", but the answer is, no.
Because there is no such thing as "real" money. Wealth creation is a myth: printing money is the reality.
The way it works is like this.
The Western Economies print money. That money is used to buy goods from all around the globe, though currently China is the favoured supplier of manufactured goods.
The Chinese accept Western (freshly printed) banknotes for their manufactured goods. These notes are kept in bank vaults, building up massive reserves of what is called "foreign exchange ".
Chinese workers do not of course see much of this "wealth". How can they, because the foreign exchange is in bank vaults?
Now you are probably thinking "you daft old fool, there are many rich Chinese". Well think again.
There are some rich Chinese but the vast majority of the one billion people living in China are poor by Western standards. They have to be kept that way or they would buy the products which China manufactures, meaning those products wouldn't be available for Westerners to buy.
This all works reasonably ok, with 80-plus per cent of the population of China (or India, for that matter) kept poor, foreign bank notes piling up in Chinese vaults and we in the West getting all the products we need to keep up our high standard of living.
Things only start to go wrong if the Chinese want to spend their foreign exchange. The reason being that if they try to buy anything, prices go up - that's called "inflation".
So the Chinese Government is having to be clever, which of course they are. You must be clever to persuade 800 million of your fellow countrymen that remaining poor is good for them.
China started its spending programme by using US dollars from their vaults to purchase US Government Bonds. That, however, didn't work too well for them. They had to buy so many to try to find a home for their dollars that interest rates on the bonds collapsed, meaning the Chinese were virtually giving the US Government their dollars back for nothing.
So the Chinese decided to use their huge stockpile of US dollars to buy up relatively cheap assets around the world. Africa and South America have been the main victims of this spending spree. Oil wells, mines, land in general and infrastructure, such as railway networks, all featured on China's shopping list.
Now, on the one hand, some in the West are unhappy that China seems to be gradually taking a leasehold on much of our planet.
On the other hand, most economists believe China using their dollars in this way is quite healthy for the West, because the vast majority of the cash involved will simply move from Chinese vaults to African or South American vaults. Cash in such vaults does not fuel Western inflation, which is all the Western economists really care about.
So the World economy has a delicate balancing act to perform. The troughs are simply when parts of the system suffer a loss of balance.
The current loss of balance is being caused by two main issues.
Firstly, the Eurozone allowed itself to over-expand, with marginal economies allowed to join the gravy train. That can't work: for the Western "Club" to remain rich and exclusive, it has to stay small. Turkey joining, which was only narrowly avoided, would have been a complete disaster.
In the end, some countries may have to leave the Eurozone. That is the price of exclusivity.
The second problem is the growing domestic inflationary pressures in China. Basically, more Chinese want to be richer. This cannot work either, for China's rulers or the West, but some "ordinary" Chinese people selfishly may not care about that.
Their punishment? They may lose their jobs, as work moves to countries where the poor can be kept poor a bit longer. Korea seems to be high up that list for now.
So that's the way the world's economy works.
Our current "Age of Austerity" will be brief so long as 1) the West stays small and 2) producer nations, like China (or Korea) keep a high percentage of their populations poor.
So cheer up - and don't vote for politicians who preach austerity. The West needs to go on spending, but at the same time make sure the rest of the world sticks to saving. The best place for our eased currency is in those foreign vaults, permanently locked up.Â