Jul

31

I was cleaning out one of my drawers recently, and came across an interesting pamphlet on Crises and Panics by James L. Fraser. It's an interesting if brief history up through the early 60s. I thought I would share his comments on identifying traits and causes of panics/crises. I am paraphrasing a bit and not completely quoting him on each bullet point here. Bear in mind, this was written in 1965.

Traits:
1) Extravagance of living, first by a few, and then by many…
2) General belief in impregnable prosperity…
3) Lavish private expenditures, which appear to be natural offshoots of immense federal projects…
4) An appetite for speculation
5) Easy money and availability of credit

Indications of impending crises:
1) Rising prices
2) Increased activity of established businesses seeking more production, more sales…
3) Active loan demand
4) Strong increase in labor employment
5) Extravagant public and private expenditures
6) Speculative mania, together with dishonest methods, fraud
7) Labor strikes and increased general violence / social instability
8) Excessive pride of opinion, especially an "American First" attitude

Causes:
1) Great failure of confidence at crucial moment(s)
2) Magnificent abuses of credit
3) Readjustment of conditions to changes in values/prices
4) General fall in prices
5) Changes in the monetary unit / revaluation
6) Contractions of or lack of money
7) Over production or under consumption
8) Psychological tendencies which covers a multitude of ideas, of which only a few ever hit the public press.

I also found his comments on "The Permanent Crisis 1960-?" interesting:

"Homer said 'After the event, even a fool is wise.' I suppose before the event, even a wise man looks foolish. Today, with strong opinions and solutions being voiced daily, a wise man tries to look for facts and thoughts which are forgotten in the heat of backing the opinion of the moment. Social control is exercised now more than ever before. We have a service-oriented economy, supported by the Federal Government as a prime mover in all walks of life. This is social action. We may not wish it or like it but we have it."

The rest of the pamphlet is also a great read, and reminds one of a quote from my favorite book of the good book (this is for Gibbons):

That which has been is what will be, That which is done is what will be done, And there is nothing new under the sun. Is there anything of which it may be said, "See, this is new"? It has already been in ancient times before us. There is no remembrance of former things, nor will there be any remembrance of things that are to come by those who will come after.


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2 Comments so far

  1. bo keely on July 31, 2012 10:05 am

    The traits resemble a boom as in Peru. And a boom going bust is panic and crisis. So the key to speculate is the timing of the causes of panic and crisis during prosperity.

  2. Stan Rowen on August 4, 2012 8:18 am

    So true, so true! The current batch of young college graduates will remember the economic trough-caused delayed start of their career for the rest of their lives. And yet I read recently that 1/3 of that generation is sympathetic to socialism. I’m hoping that many will be absorbed by innovative industries (nanotechnology; biotechnology; and the energy, transport, and medical fields). I’ve also encountered a number of them going into teaching, nursing, or helping villages in underdeveloped countries, all of which are potential growth areas for those who might have more of a social-needs orientation. Since the future will be greatly influenced by this newly educated generation, let’s try to understand their mindset and be supportive, and mentor them on the danger signals that Mr. Distasio so kindly quoted from Fraser’s pamphlet.

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