Often people feel and act as if the problems and obstacles that they face in life are the result of a world that is actively trying to thwart them. It can seem that stuff comes from nowhere to suddenly put a spoke in our wheels. The car that won’t start, the crisis that crops up at work, the great argument that breaks up the relationship and the economy that takes a dive right after we invest.
photo credit: Nomad Tales
Yet the truth is that all these problems have their origin days, weeks, months and even years previously. Problems are the outcome of imperfect design. They may stay hidden for a certain period of time, but eventually they will reach a situation where they will be exposed. This is a manifestation of what I spoke about a couple of weeks ago; The truth will out.
The problem didn’t occur when you noticed it… it was bound to occur due to your attitude, your perspective or your behaviour. You just became aware of it.
For example, according to the media, everyone right now is shocked and panicking at the state of the economy. Yet the problem has not just occurred. It was obvious for the last two or three years that this was about to happen. The problem is not that people have too little confidence in the economy. The problem was that for the last three years people have had too much confidence. More confidence than the facts warranted. Collectively we became carried away on the wave of a boom.
photo credit: rimesparse
I started to look for work in 1988. It was a bad time, after the excesses of the eighties and the beginning of the recession. There were similar attitudes and pessimism then and I wanted to understand why. I read a couple of books to understand the situation and one particularly made an impression on me.
It demonstrated how we have economic cycles where people lose all sense of perspective economically and then veer dramatically and believe the entire system is about to collapse. It demonstrated how confidence in economic wellbeing was linked to such unrelated things as permissiveness, the length of skirts and many other factors.
From the South Sea Bubble to the 1930′s depression. It related how people would sell their houses to invest in a sure thing, tulip option, only for it all to crash in 1637. Over and over again in various countries in relatively predictable cycles.
photo credit: Aidan Wojtas
It explained to me how markets worked. Especially, ‘The Greater Fool principle’. This is the idea that someone makes money on something. Others hear about their success and follow them into the market. Then their success becomes known and everyone floods into that market. But eventually there’s no-one left to buy from them and so the market crashes.
This is how when Joe Kennedy realised that Shoeshine boys were investing in the stock market that the price couldn’t go up because there were no greater fools to come into the market. Back in the late eighties, Sir James Goldsmith made an impression on me with his similar prescience. He saw what was happening in the market realized it was all about to crash and sold everything including his house and office. On the Black Wednesday when everyone else realised what happened, no-one could get in touch with him because he’d sold everywhere he was contactable.
photo credit: TheTruthAbout…
Back in the eighties the pre-crash talk was all about how new now Economists could master the economy and prevent such feats of nature as booms and busts.
In the last couple of years, the talk, here anyway, was all about how the influx of Immigrants have pushed up the demand for housing and so house prices will always rise.
All crap.
When an average salary is not enough to buy a house, when you have people taking out 60 year mortgages and banks lending 125% mortgages, it’s a sure sign that there’s no-one else to enter the market.
There are always cycles and seasons. There will always be booms and busts that reflect the confidence of people. And equally there will always be reasons that make sense to everyone who wants to believe them. It’s just another way people try to make the world fit in with their belief structure rather than pursue truth.
It’s wanting to be right rather than happy.
In just the same way there are problems cropping up for you and I, that do not have to be problems if we broaden our level of awareness and catch them before they crash into our awareness.
It all depends whether we want to be right or happy?
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Which book was it that you read? It sounds fascinating, I’d love to pick it up. Maybe ‘m just tired but I don’t think the title was mentioned.
Very interesting post, made me consider some things about the markets (ex: in hindsight, yo are absolutely right: how could we NOT have been at the top when we have 60 yr mortgages?). Gonna have to file what I’ve learned here today for later use for when the next bubble invariably forms…
Sorry, I can’t remember the name of the book. I read it around 91 or 92.
Just recall it made a big impression on me how we consistently believe for one reason or another that we have overcome the natural cycles.