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Why do Recessions Happen

Updated on November 8, 2014

History Repeating Itself

We all know the story when it comes to the economy. One day you're flying high, and the next you're trying to figure out which meals of the day are not that important. These boom and bust cycles have been going on for a long time now (I can remember a few in my lifetime) and it got me thinking recently; what is the economy really? It appears as quite a hard concept to grasp, an immense unstoppable machine with ups, downs, highs, lows, bulls, bears, futures, commodities, equities...the list of terms goes on and on. Now being someone who doesn't really buy into artificial complexity I am always looking for a simpler way to understand such ideas because I don't really believe that things need to be so intimidating (this just serves to make ordinary people shy away from the subject and leave it to the 'experts'). So what is the economy really? The answer is...people, that's it, you and me.. When we feel good the economy does well, and when we get nervous we all know what happens next. I mean there is no actual machine, it's just an illusion. It only exists in words and terms, it has no physical structure.

So if we accept my intentionally oversimplified definition of the economy things get rather interesting. I mean if the economy is really just average people living their everyday lives and conducting their everyday business, why such violent swings on a decade to decade basis. Why the dizzying highs and terrifying lows? Shouldn't it just move along slowly and steadily and kind of average out? Are we really that hyper and short sighted as a civilization? Do we just enjoy making the same mistakes over and over so we can say clever things like "well you know history repeats itself". There has to be more to it.

Up until very recently I think that people had a very good excuse for getting caught up in the whirlwind of good economic times and then following it down as it 'jumped off a cliff'. We were just not that smart! (That is to say, access to information was somewhat more limited, to put it in more polite terms). Therefore, it was easy for our more educated elected officials and Wall Street types to lead us around like cattle and get us to stampede when necessary. However, most of us in this day and age, (at least when discussing the western world) have a lot of resources at our disposal for educating ourselves (the Internet for one) and at least making ourselves aware of the game that's being played. Our excuses are getting thin and the game is getting old yet it continues..."running over the same old ground, have we found the same old fears?" (to quote a famous band that you may know?)

It's Only The News if You Believe It

I don't recommend watching the news but if you do, try to remember the all important truth, that television is fiction. Sure, things get all serious for a moment when they interrupt reality TV between six and seven and there's people in suits who look rather impressive... and then of course there are the channels devoted to the stuff 24/7 but don't be fooled! it's mostly fantasy. They are right there to pump us up when things are going well, telling us which stocks to buy and how to buy homes with zero down and then they flick the switch and tell us to start worrying because it's going to be a bumpy ride. If you are observant you will have noticed that the news does not report economic collapses after they have happened. They begin talking about a recession before we are even in one. If I may be a tad sarcastic for a moment; I never realized that they were so skilled at predicting future events?!. I've never seen a reporter get to a crime scene in advance and say: "Ok, now, if you watch carefully, we are about to witness a murder!" Unfortunately, what always happens is that we get into a state of collective amnesia and forget how it all really went down, and we don't realize that we were talked into a recession. Remember, people get scared and the economy suffers. Also, remember that there is more money to be made in a tanking economy than there is in a rising economy if you are on the inside! What we often witness is just a huge redistribution of wealth, and guess who gets the short end of the stick? It's not the polo players!

In the end, I hope this has the desired effect of helping anyone who reads this realize that the next time doom and gloom is being sold to you on your local network, just take it with a grain of salt. The stabilizing effect of a calm and secure population will lessen the dramatic dips, and prevent panic from taking hold. Hopefully, as we collectively become more aware it will become more difficult for those in positions of power to trick us with the same old stunts. However, it's best if we don't let our guard down because as we get to be a more intelligent and informed population, those who wish to maintain their control will have to develop new ways to lead us down the desired path. They will most likely try new tactics that will appeal to our new level of sophistication and offer us alternatives that speak to our growing sense of logic and fairness. Remember the Wizard of Oz, when the wizard says "pay no attention to the man behind the curtain"...well maybe let's all start paying would be foolish to do otherwise.

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