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.
