Boom and Bust Cycle, Causes, History, and How to Protect Yourself

28 Booms and Busts Since 1929

Riding high during the boom phase
During a boom cycle, everyone thinks they will get rich. Photo: Photo by James Devaney/WireImage

The boom and bust cycle is the alternating phases of economic growth and decline. It's another way to describe the business cycle or economic cycle.

According to the Federal Reserve Bank of Richmond, these phases are inevitable. The more you understand their phases, causes, and history, the more you can protect yourself from their effects.

Phases of the Boom and Bust Cycle

The boom and bust cycle has the same four phases as the business cycle.

Phase Boom and Bust Business Cycle
1. Boom Expansion
2. End of Boom Peak
3. Bust Contraction
4. End of Bust Trough


In the boom phase, growth is positive. If economic growth remains in the healthy range of 2% to 3%, it can stay in this phase for years. It accompanies a bull market, rising housing prices, wage growth, and low unemployment.

The boom phase doesn't typically end unless the economy overheats. There's too much liquidity in the money supply, leading to inflation. As prices rise, irrational exuberance takes hold of investors. The growth rate grows above 4% for two or more quarters in a row. 

You know that you're at the end of a boom phase when the media says the expansion will never end. That's when even the grocery clerk is making money from the latest asset bubble.


The end of the boom or expansion phase is the peak. According to the National Bureau of Economic Research, it's the inflection point where the economy stops expanding.


The bust phase is the contraction stage of the business cycle. It is brutish, nasty, and mercifully short. On average, it lasts 11 months. The economy contracts, the unemployment rate is 7% or higher, and the value of investments falls. If it lasts more than three months, it's a recession. It can be triggered by a stock market crash, followed by a bear market.

A stock market crash can cause a recession. As stock prices fall, everyone loses confidence in the state of the economy. When investors don’t feel confident about the future outlook, they pull out their investments. They cut back on business activities such as purchasing, hiring, and investing.


The trough is the inflection point where the economy stops contracting and begins to expand.


Three forces combine to cause the boom and bust cycle. They are the law of supply and demand, the availability of financial capital, and future expectations. These three forces work together to cause each phase of the cycle.

In the boom phase, strong consumer demand is the leading force. Families are confident about the future, so they buy more now. They know they'll get better jobs, and their home values and investments will increase in value. This demand means companies have to boost supply, which they do by hiring new workers. Capital is easily available, so consumers and businesses alike can borrow at low rates. That stimulates more demand, creating a virtuous circle of prosperity.


Central banks use monetary policy to modify the impact of boom and bust cycles. The government also uses fiscal policy.

If demand outstrips supply, the economy can overheat. Also, if there's too much capital chasing too few goods, it causes inflation. When this happens, investors and businesses try to outperform the market. They ignore the risk of bad investments to achieve gain. 

In the bust phase, the main force is plummeting expectations about the future. Investors and consumers get nervous when the stock market corrects or crashes. Investors sell stocks. They buy safe-haven investments that traditionally don't lose value, such as bonds, gold, and the U.S. dollar. As companies lay off workers, consumers lose their jobs and stop buying anything but necessities. That causes a downward spiral and recession.

The bust phase stops when supply lowers prices enough to stimulate demand. It occurs when prices are so low that those investors who still have cash start buying again. 

Protect Yourself from the Boom and Bust Cycle

The best way to protect against the boom and bust cycle is to rebalance your investment portfolio once or twice per year. It will automatically make sure you buy low and sell high. For example, if commodities do well and stocks do poorly, your portfolio will have too high a percentage of commodities. To rebalance, you'll sell some commodities and buy some stocks. That will force you to sell the commodities when prices are high and buy the stocks when prices are low.

Know the causes of recession so you can hedge your finances before it happens. Follow the top five leading economic indicators. Look out for signs such as high interest rates. That could lead to declining home prices as sellers offset the higher mortgage costs. Another significant sign is a decline in durable goods orders.


If you're really concerned, you can take these six steps to prepare for an economic collapse. Although a collapse is highly unlikely, these steps will also help you weather a bust phase.

Asset bubbles can be just as dangerous. There have been seven since 2005. They occurred in housing, oil, gold, U.S. Treasurys, the stock market, the U.S. dollar, and bitcoin. Study them to make sure you don't get caught up in the next one.


The NBER provides the history of boom and bust cycles. It uses economic indicators to determine when each of the four phases occurred. The most important is the quarterly gross domestic product report. It also uses monthly reports, including employment, real personal income, industrial production, and retail sales. 

As shown in the chart below, there have been 29 booms or busts since 1929. The NBER has data on boom and bust cycles since 1857. 

U.S. Boom and Bust Cycles Since 1929

Cycle Duration Comments
Bust Aug. 1929 - Mar. 1933 Stock market crash, higher taxes, Dust Bowl.
Boom Apr. 1933 - Apr. 1937 FDR passed New Deal.
Bust May 1937 - Jun. 1938 FDR tried to balance budget.
Boom Jul. 1938 - Jan. 1945 World War II mobilization.
Bust Feb. 1945 - Oct. 1945 Peacetime demobilization.
Boom Nov. 1945 - Oct. 1948 Employment Act. Marshall Plan.
Bust Nov 1948 - Oct. 1949 Postwar adjustment.
Boom Nov. 1949 - Jun. 1953 Korean War mobilization.
Bust Jul. 1953 - May. 1954 Peacetime demobilization.
Boom Jun 1954. - Jul. 1957 Fed reduced rate to 1.0%.
Bust Aug. 1957 - Apr. 1958 Fed raised rate to 3.0%.
Boom May 1958 - Mar. 1960 Fed lowered rate to 0.63%.
Bust Apr 1960 - Feb. 1961 Fed raised rate to 4.0%.
Boom Mar. 1961 - Nov. 1969 JFK stimulus spending. Fed lowered rate to 1.17%.
Bust Dec. 1969 - Nov. 1970 Fed raised rate to 9.19%.
Boom Dec 1970. - Oct. 1973 Fed lowered rate to 3.5%.
Bust Nov. 1973 - Mar. 1975 Nixon added wage-price controls. Ended gold standard. OPEC oil embargo. Stagflation.
Boom Apr. 1975 - Dec. 1979 Fed lowered rate to 4.75%.
Bust Jan. 1980 - Jul. 1980 Fed raised rate to 20% to end inflation.
Boom Aug. 1980 - Jun. 1981 Fed lowered rates. 
Bust Jul. 1981 - Nov. 1982 Resumption of 1980 recession.
Boom Dec. 1982 - Jun. 1990 Reagan lowered tax rate and boosted defense budget.
Bust Jul. 1990 - Mar. 1991 Caused by 1989 Savings and Loan Crisis.
Boom Apr. 1991 - Feb. 2001 Ended with bubble in internet investments.
Bust Mar. 2001 - Nov. 2001 2001 recession caused by stock market crash, high-interest rates.
Boom Dec. 2001 - Nov. 2007 Derivatives created housing bubble
Bust Dec. 2007 - Jun. 2009 Subprime mortgage crisis
Boom Jul. 2009 - Jan. 2020 ARRA and QE
Bust Feb. 2020 - Present COVID pandemic

Frequently Asked Questions (FAQs)

How long does a boom and bust cycle last for oil?

The boom and bust cycles for oil can last a decade or more. For example, after reaching a low of $11.37 in 1998, the price of a barrel of West Texas Intermediate spent 10 years climbing to a high of nearly $140 in 2008. That high has remained the record for more than a decade since.

How does the boom and bust cycle affect workers?

Workers are more likely to lose their jobs during busts and see wages increase during booms. Employment typically tracks the economy's progress through the business cycle. During the "boom" phase, as the economy expands, employment and incomes increase. During the "bust" phase, employment falls off as the economy slows.

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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Federal Reserve Bank of Richmond. "Business Cycles,” Page 6.

  2. “Introduction to U.S. Economy: The Business Cycle and Growth.”

  3. National Bureau of Economic Research. “The NBER's Business Cycle Dating Procedure: Frequently Asked Questions.”

  4. “Introduction to U.S. Economy: The Business Cycle and Growth,” Page 1.

  5. National Bureau of Economic Research. “The NBER's Business Cycle Dating Procedure.”

  6. National Bureau of Economic Research. “U.S. Business Cycle Expansions and Contractions.”

  7. Federal Reserve Bank of St. Louis. "Crude Oil Prices: West Texas Intermediate (WTI) - Cushing, Oklahoma."

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