Why are there economic fluctuations? Why will there always be boom times and downturns?
There are many theories: businesses and governments over-investing, banks over-lending, people over-spending, and even politics.
Without doubt, there is always true underlying economic growth with all the innovations and true productivity improvement.
However, the economy in the real world will always have ups and downs, like a pendulum swinging back and forth.
People, businesses and governments tend to over-spend and over-invest during good times, leading to high prices (think property, stocks and even food).
The unsustainable growth will self-adjust to lead to a declination.
And during the bad times, the opposite happens. The pendulum swings back.
Who to blame?
I like this particular quote from an article in the current issue of Fortune magazine:
…whether it’s junk bonds or tech stocks or emerging-market debt, Wall Street always rides a wave until it crashes…
