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Seven Reasons Why It Is So Frustrating To Warn About Economic Crises
Topic Started: 7 Oct 2014, 02:27 PM (317 Views)
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7 Reasons Why It Is So Frustrating To Warn About Economic Crises

I have a hard time believing that six whole years have passed since the Global Financial Crisis of 2008. My memories of this time are so vivid that it feels like it was only yesterday. I attribute this feeling to the fact that the Crash of 2008 was a very traumatic time for me as a recent college graduate who was looking to start a career in finance at the very worst time imaginable. That experience was what drove me to warn about the unsustainable nature of our debt-driven global economy even years after the financial crisis.

Since then, global central banks have managed to inflate new asset bubbles that are alarmingly similar to the ones that caused the financial crisis in the first place. While most people are aware that the global economy is struggling with anemic growth and burdensome debt, few understand that we are currently experiencing another bubble phase rather than a sustainable recovery. This is just one of the many challenges that people who warn about economic bubbles and resultant financial crises are forced to deal with as we attempt to educate the public in hope of preventing the next disaster.

Here are seven reasons why it is extremely frustrating to warn about bubbles and economic crises, even though I believe it has to be done anyway:

1) People don’t believe you until the crisis happens

Many people are guilty of a cognitive error called normalcy bias in which they underestimate the probability of a crisis even after they are shown ample evidence of its likelihood. Those who have this mentality typically comfort themselves with thoughts such as “the government wouldn’t let such a disaster happen” or “2008 was a ‘hundred year storm’; it won’t happen again for a very long time” or “this time is different.” This “believe it when I see it” type of thinking makes it extremely difficult to rally a critical mass of people for the purpose of taking preventive action before it is too late.

2) Even many sympathizers don’t understand the full extent of the risks

There is another group of people who concede that we are on an unsustainable path, but do not understand how severe the coming crisis will be. People who think this way often believe that we may experience a recession, a bear market, or further economic stagnation, but stop short of believing that another calamity like 2008 or worse is possible.

3) People think that you’re too “negative”

When a bearish analyst shows facts to support their conclusions, many people simply write them and their evidence off as being “too negative” (as if a positive attitude will erase global debts and deflate asset bubbles).

4) People are apathetic

In my experience, there are people who may not have a hard time believing that another global financial crisis is coming, but they feel that the situation is so much larger than them that they simply take an apathetic stance instead of a proactive one. This type of apathy makes it very difficult to rally enough people to take necessary action.

5) Dealing with short-term thinkers

Many people, especially in the finance community, tend to care more about the short-term profit opportunities that bubbles create while turning a blind eye to the risks that these bubbles pose to society. I’ve been told many times, “stop worrying so much about bubbles, and start making money on them!”

6) Feeling alone

When warning about bubbles and economic crises, it’s very easy to feel like a “lone voice in the wilderness.” It’s difficult to watch the rest of society get caught up in frivolous bubble manias while feeling like a curmudgeon for warning about the inevitable hangover that will result.

7) Career risk

Economic bears who work in finance or the business world face career risk if they are too cautious as a result of their awareness of a coming crisis. At the same time, their risk-embracing colleagues receive praises while the bubble continues to inflate.

Despite these frustrations, I still believe it is well worth the sacrifice to warn about economic bubbles and trying to prevent another devastating crisis.

Read more: http://www.forbes.com/sites/jessecolombo/2014/09/30/7-reasons-why-warning-about-economic-crises-is-insanely-frustrating/
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