Author: Mwangi Waithaka

A recession is technically defined as two consecutive quarters of the fiscal year with a decline in the gross domestic product, or GDP, of a given nation. A healthy economy expands over time, so two quarters in a row of contracting output suggests there are serious underlying problems, according to Shiskin. In 1974, economist Julius Shiskin came up with the definition of a recession, and it has become a common standard over the years. GDP is similar to a receipt for an economy. It includes all the goods and services produced and sold in an economy over a year, combined…

Hyperinflation is a situation of very high, fast, and uncontrolled increases in the prices of goods and services in the economy. It is an extreme case of inflation. It means the inflation rate is above 50% per month. For example, consider an item that costs Ksh.100 in January. Since 50% of Ksh.100 is Ksh.50, that item would cost Ksh.150 in February. Again, since 50% of Ksh. 150 is Ksh. 75, the same item would cost Ksh. 225 in March. This is what a 50% monthly inflation rate means. With this trend, a good priced at Ksh.100 in January could to…

Deflation is the contraction of the currency supply. Most countries have a central bank that acts as a key player in the country’s economy. It can engineer the growth and decline of the economy time and again. Think of it as the mastermind behind the scenes, manipulating and disrupting economic activities while we play our parts as puppets. In essence, central banks can indirectly sway consumer spending habits. Through various tactics, the central bank influences how businesses adjust their prices. It can use tools such as interest rates and the group psychology of human nature to intentionally create economic booms…

The current monetary system brings into being an unlimited currency supply, which in extreme cases creates inflation. The invention of money helped humans advance from the Stone Age. Nevertheless, the vast increase in economic activity during the Industrial Revolution in the nineteenth century required a relatively inelastic means of payment. This also resulted in the introduction of currency alongside the establishment of central banks. One of the tasks of a central bank is to control the money supply and make sure prices remain relatively stable. It simply prints money, thus increasing the money supply, and raises the interest rate charged…

The previous article talked about the concept of international trade. This paper aims to explore more thoroughly the relationship between imports, exports, and debt and how it all connects with the IMF and World Bank. Imports, Exports and Debt What happens when people in a country want to buy more things than what is produced in that country? Well, they have to import those items. To pay for those imports, the country must sell assets or borrow. When goods and services are imported, money that was created or borrowed in the home country leaves, but the debt associated with that…

International trade is the exchange of goods and services across international boundaries. It is essential for the global economy to function efficiently. If a product or service is produced in Kenya, and then it is sold to a person or business in the US, then the transaction is viewed as an export for Kenya and an import for the US. Every country engages in both exporting goods and services to other countries and importing goods and services from foreign trade partners. These goods can range from manufactured items such as machinery to agricultural goods like processed foods, while services include…

Central banks can generate a virtual currency called central bank reserves. Banks can use these reserves to transfer payments to one another. It is just like a digital currency that most banks prefer rather than simply using physical currency and notes. Banks transfer this electronic money amongst each other to complete transactions. They prefer this method since carrying large amounts of cash can be risky, inconvenient, and costly to handle. The Central Bank stores this electronic money for the banks. A member of the public cannot use this electronic money. You are not eligible to have such an account with…

Where Money Comes From Banks create currency. Money does not originate from economic activity. Many people have the misconception that money naturally emerges from the process of people engaging in economic activities such as making, growing, selling, and producing things. However, this is not the case. Money must be intentionally generated and distributed. 1. Physical Currency The central bank of the government creates this money. It is also called base money. It can be in the form of paper bills or coins. Physical currency represents only a small portion of the economy, usually between 3 and 8 percent. The central…

My earlier articles introduced the subjects of how money is created by central banks and commercial banks, as well as the idea of currency creation and government debt. This piece will explain both what the debt-based monetary system is and how it works. Get ready to explore the most gripping enigma the world has ever seen which impacts every single being on this planet. Many people have a gut feeling that something is amiss with the global economy, but only a few understand what it truly is. Don’t worry if you’re not fully understanding how this system deceives people. Not…

In earlier posts, we explored the creation of money by central and commercial banks. This creation process is a carefully designed system of always being in debt. The system ultimately leads to significant financial burdens for individuals like you and me. For the sake of consistency, we will use the US as a primary point of reference. Many money practices in many other countries align with those in the USA. Let’s delve into how this system operates. Personal income tax was unnecessary prior to the establishment of the Federal Reserve in 1913. Its establishment coincided with the amendment of the…