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Strategies & Market Trends : Booms, Busts, and Recoveries
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To: Ilaine who wrote (27881)1/26/2003 3:07:14 PM
From: Maurice Winn  Read Replies (1) of 74559
 
CB, I think booms do cause busts. That's because booms are not just economies performing very well, but include a large wealth effect, misallocation of resources [bad investments which don't deliver expected profits], bad buying decisions such as buying cars which are wayyyyy to expensive for one's actual value. Quitting work because on paper one is wealthy too.

So production of expensive products goes up and effort [production] given on actually useful things goes down. When the realization that one is not wealthy hits [because profits are not forthcoming and debts are mounting], one stops buying the luxury stuff, but can't afford the normal stuff [people batten down the hatches] and has trouble getting a job because so much has gone bankrupt.

Markets take time to clear and courts take time to process bankrupt assets so the bust extends for quite some time.

I've seen several booms and busts in my lifetime. Same old pattern. I've never seen a depression!! Don't want to.

Mqurice
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