When the unsustainibility of those businesses is exposed and an economic restructuring occurs to better adapt to economic necessities, economy will be said to be in recession.
Economic growth: se produce mas, a veces para una demanda que no es sostenible.
Not so free market economy: Intervined economy (distorsion)
When markets are (economy) intervened or centrally planned, prices don't reflect a natural supply-demand relation, so (calculating with money) profits don't represent creation of value anymore (and favoured producers get value that is not correspondant with demand). Therefore, capital is attracted by such (money numbers) profits and allocated into the favoured producers instead of into those that increase value availability the most.
1) As a consequence there is a reestructuration of the economy that lowers economic growth/progress because of a non-natural allocation of capital.
2) (Because of policies) Those suddenly created distortions that are not allowed to self-correct, may create false expectations, which may trigger or exacerbate business cycles, transforming them into economic cycles and bubbles.
Economic cycles consist of generalized business cycles, those that affect simultaneously different sectors.
Usually, when the destruction of value is evident, those policies are somewhat reverted, or further policies are enforced at different places of the value chain.
Example: fiat money (intervened):
1) Fiat money results in a value-redistribution scheme from holders of that money to the Central Bank that issues new units. Each previously existing unit represents now a smaller portion of wealth, which destroys previously acquired knowledge through the price mechanism and tends to harm any formerly established recipient of payments while benefiting the payer.
The fact that the Central Bank doesn't look for a return when it distributes those units constitutes an advantage for inefficient producers, specially for those directly connected to it.
Businesses that otherwise would be bankrupt, are able to profit and expand. Companies that are able to survive because of the cheap credit "subsidized" by the constant injection of fiat, are called zombie companies.
Rescues and guarantees are intermittent injections of fiat money that incentivize the benefited companies to disguise capital consumption as profit.
E.g. commercial banks receive compensation from excessive risk taking. Prior to the 2007-2010 financial crisis, they assumed extreme investment risks that appeared very profitable until the market correction came. They had actually been depleting their reserve, so they had to request a rescue when their bankruptcy was evident.
The abuse of the fiat money system conducts the economy to an anemic growth (poor growth in which business that destroy economic value are able to capt the new money that flows from the Printing Press).
2) The unpredicted variations of the monetary base and its distribution provoke unanticipated abrupt changes into the sectors where it flows to. This can feed incorrect assumptions that do not identify such a temporary flow as the main cause.
E.g. in Iceland's prior to the 2008 economic collapse, there was an artificial wealth illusion due to a spectacular growth in asset prices. Excesses were spurred by a massive growth in debt. The natural barrier for the containment of debt was demolished by the current of money from Central Banks to debt markets. Iceland's bust phase started at the time its credit expansion finalized.
The pumping of money is stopped when the Central Bank considers that the value of fiat money is diluting too quickly. The restructuring of the economy that follows is called crisis.
*****Los tipos de interés de los bonos del gobierno tienden a ser mas bajos que si el BC no interviniera. Incentivo a crear mas deuda que en un libre mercado, la señal te está dando el ok, para endeudarse más..that price is fixed so, it does not send a signal to the government that it is getting too crazy and no adjustment is produced. PRICE fixed, money stream no. La corriente de dinero cambia, y pasan ciclos económicos.
sistematic suppression of volatility leads to fragility.
When, for example, monetary policy lowers some interest rates, other interest rates tend also to downgrade; so the costs of those who take financial risks with borrowed fiat money are reduced and similarly, the cost of incurring in debt for governments decreases, which incentivizes businesses' debt financing and government spending.