Economic growth follows an S-curve, tapering off throughout a LongWave.

A fundamental economic reality is often misunderstood: While economies do expand at rates beyond simple arithmetic progression, they don’t achieve true geometric growth. Instead, they follow an S-curve pattern – rapid initial growth that gradually decreases as the business cycle matures.

The critical issue arises because financial obligations – savings and debts – tend to grow exponentially through compound interest. This creates a widening gap between financial claims and the actual productive economy, which grows more slowly in an S-curve pattern.

This divergence becomes problematic when interest rates remain elevated. High rates mean that an increasing share of income must go toward servicing debt rather than purchasing goods and services. This drain on consumer spending power eventually constrains economic growth and can trigger downturns.

The mismatch between exponential financial growth and S-curve economic growth creates an inherent instability in our economic system. Without periodic reductions in interest rates or other interventions to ease debt burdens, this dynamic can transform a natural economic slowdown into a more severe contraction.

This illustrates why policies focused solely on debt-driven growth often prove unsustainable. The real economy cannot maintain the exponential growth rates required to service ever-expanding financial obligations indefinitely.