Tipping Points and Panics

So far, we’ve covered deflation and how, unlike inflation, it occurs in spurts. We went on to see that deflation recurs in cycles throughout history, and explored some of the characteristics these cycles share. Finally, we recognized that the transition from inflation to deflation occurs rapidly, usually through a panic.

It is interesting to note that, before a panic, everything is it always was. After a panic, nothing is as it used to be. This is a clear sign of a tipping point, as made popular by Malcolm Gladwell. It can also be described as an inflection point, a change of trend, etc. In Chaos Theory, it is the point where a complex system changes from one state to another.

While it may take years for the changes that begin in a panic to permeate, they are typically profound. To get an idea of the scope and scale of changes we can expect, we need only look back to the Great Depression. To experience the challenges faced by the average American in the 1930s, check out President Roosevelt’s Fireside Chats. In those, you’ll find that they too had to deal with a credit implosion, and the resulting bank and business failures. They also had to deal with an intractable unemployment problem, and extremely low farm prices.

To address these problems, the U.S. Government implemented many radical ideas, including many which are a normal part of our lives today:

  • Directly hired people to work, not only in construction projects, but even as writers and artists.
  • Put in place agricultural controls to support farm prices.
  • Eliminated the work done by minors in the workplace.
  • Shortened the work day and the work week.
  • Established minimum wages.

The point here, is we will likely see similar “radical” ideas put forward to deal with our problems. To survive and thrive in these pending conditions, it is important to recognize these facts, and to position yourself to benefit from these changes as the occur.

To date, we’ve been looking at the Great Recession from the macro, big-picture perspective. In the next posting, we’ll go micro, and begin looking at these changes from the individual’s perspective. This will lead us into a discussion about what you can do today to help yourself tomorrow. Until next time …

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