Bubble Trouble
 

 

Today we hear headlines that read: ’mortgage meltdown’, ‘credit squeeze’, ‘economy's descent steepens’, ‘worst retail January in 40 years’. How are they connected, what might be their impact and what should we do?

 

The quick answer is that many imprudent individuals bought homes that they couldn't afford, putting everyone in jeopardy.

Who are the other participants in this drama and how does it play out? What we have is “asset-price hyperinflation” or a financial bubble “manufactured by government, finance, and industry, a shared speculative hallucination and then a crash, followed by depression.”

This bout of insanity was based on the ’faith‘ that wide expansion of home ownership produces happiness, social harmony and national economic well-being. Spurred on by the Federal Reserve (US) and financed by exotic credit derivatives and debt securitization, massive home building and related marketing programs were launched.

 

It created trillions of dollars in fake wealth and minted many millionaires. Voices that questioned this new theology were drowned out by myopic majority vision.

The balloon is deflating and its descent threatens the world's financial systems.
Banks close or are rescued by government. Businesses have closed and social services are being curtailed.

The good news is that this “disruption” too will pass ...to be followed by another. ”The bubble cycle has replaced the business cycle and seems to be necessary for the economy to function.”

What to do? Know history: Tulip Craze 1636, Great Depression c.1930, Dot.com 1999, etc. Live simply. If we are able to better know ourselves and to derive happiness from being and not simply having, we can become less dependent on external things and the ‘need’ to have more.

 

Let us be more rather than just having more. If we place importance in that which is more lasting in life, in that which contributes to our sense of freedom, we make ourselves less susceptible to the psychological, if not financial, effects of the inevitable bursting of a bubble.
 

 

February 15, 2008

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