June 12, 1998

Boom and Bust

You gotta know when to hold,

Know when to fold,

Know when to walk away,

Know when to run.

The Gambler, song lyric

Free market economics has been described as "boom and bust." The description is historically accurate, and if anything in economics comes close to being a natural law, that is it. One concomitant of this theory is that during a boom, most people believe that it will never come to an end. It is the equivalent of a gambler who seems to be on a winning streak. He refuses to look at the fact that a winning streak is a fiction that cannot continue.

The question with our economy, and all of the world economies, is not whether there will be a recession or a depression, but when will it happen and how severe will it be? How many people will be impacted and how severely?

All of the talk about the future of Social Security is as significant as the proverbial rearranging the deck chairs on the Titanic. There are things that could have been done to soften the impact of a recession, but it is too late now. Even if something could be done, we can be certain that the president and congress wouldn't do it. With the current budget surplus, they have some opportunity now, and are doing nothing. What is left is to wait for the impact, which will surely happen. No one can predict when, but it is a good bet that it will happen within 5 or 10 years. I would guess, judging from what is happening in Asia, that within 5 years would be the best bet. President Clinton is betting that it will not happen in the next two years. The Democratic party will do better if it happens when the Republicans are in power. Of course, to you and me, it makes no difference at all whether it is the the Democans or Republicrats who are in power when the economy crashes.

As has happened with every recession and depression, some people have been unaffected, some have profited handsomely from it, and many people have had problems of varying severity. Those who have placed their faith in the economic high priests and the government will probably be impacted the most by the coming crash.

During the great depression of the thirties, people who owned their homes or farms, free and clear, were a lot less impacted than those who were in debt. People heavily in debt often lost everything, to the profit of those who held the mortgages. Great fortunes were made during the great depression of the '30s and lots of people lost their shirts. A few people, who believed that money was the most important thing in their lives; believing that they were disgraced beyond redemption, committed suicide.

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