In my humble opinion, the soundest possible advice at this stage of the FT aftermath is the famous saying by one of the most beloved Presidents of the USA - Franklin D. Roosevelt during his speech on the 2nd day of July, 1932 ( The Great Depression years ) :- " The only thing we have to fear is fear itself . "
One of my doctor friends said this about his cancer patients. Most cancer patients die of fear. Then there are those who die of anger ( My God, why me ? ...XYZ ... ( censored ) ). The third most common type of cancer casualties die from medical treatment ( with unwanted side effects from ultra potent drugs ) or maltreatment when they look to all sorts of unspeakable alternative therapies. This may be my friend's outrageous attempt to relieve himself and his colleagues of professional responsibility yet his reasoning makes a lot of sense.
The key word and only relevant word in managing the economy is CONFIDENCE - consumer confidence to be more accurate. The global financial system experienced a total meltdown at the height of the FT last year. The sole cause of this meltdown is a total loss of CONFIDENCE in the financial system due to dubious practices of the black sheep of the financial world. A wave of panic swept across the whole world. Fear as everyone can see is the worst enemy of CONFIDENCE because the latter is a very elusive entity. Everyone knows that all financial institutions have to utilize our deposited funds to make a profit so that we can get interest income from our deposited funds. There is always insufficient funds to meet the withdrawal by 100% of the depositors. Yet when everyone has confidence in the financial system nobody will care to queue up for a withdrawal.
At this point of the FT aftermath the only way out for all of us is to stick together through thick and thin as if we were all members of the same family. As a matter of fact, we all are anonymous and insignificant members of the global village and none is immune from any global catastrophe. So, we must take this kind of attitude just as in the vital issue of environmental protection.
No amount of reduction of the bank lending interest rate will revitalize our world economy if no one has any confidence in the money we use or in the financial system itself. It sounds so simple and yet why is it not possible to regain much needed consumer confidence at this point ? The simple answer can be found in a sociological concept called CONTINGENCY DECISION MAKING. To ignore the technical jargon this simply means our decisions are not independently made by ourselves but our decisions actually depend on the interaction of our own opinions and what we perceive to be the opinions of other people. It is just like a mutual guessing game in which everyone tries to guess what everyone else is guessing the right answer to be. Yet there is no absolutely correct answer to start with. The final outcome depends entirely on the tuck-of-war between optimists and pessimists and how these two categories win over the undecided majority to their side. ( Interested readers may like to view page 110 of my book - The Universe - on erratic investor behaviour in Chapter ( vi ) on the science of networks by hitting the above blog title to reach my website .)
The generally accepted thinking is that no one wants to make a fool out of himself by buying a house ( or anything for that matter ) at a higher price when it could be bought at lower one in a falling market. So, it becomes a self fulfilling prophecy. It is not a matter of the money but of FACE. We must not be seen as a fool or an idiot. There are very few people who are fools or running bulls ( how I wish there were one in the stock market ) like me by dishing out so-called wise predictions and suggestions and by sticking my neck out to be chopped off when I am proven wrong. The safest way seems to be to jump on the band wagon when an established trend is up and running. This way there can only be gains and no risk of any loss or damage to our pockets or pride. The only trouble is that someone must start the band wagon rolling by giving it a huge push. When one has seen some 25 % of the whole universe ( the portion of the observable universe covered by the SDSS digital sky survey database which is the subject of the Galaxy Zoo project - please hit this blog title above to reach my website which includes my astronomy research in the project ) it makes very little difference if I am called a fool or not in the grand scheme of the universe so long as I have the satisfaction of knowing that I am doing the right thing. Furthermore, I may even gain some reputation if by chance my predictions come true. At this point I would make a sincere invitation to the readers to watch and listen to my self performed music video of the song - " You'll Never Walk Alone " - from the great musical " CAROUSEL " on my YouTube channel at the home page of my website. The link to my website is embedded in the title of this blog. Just hit on the blog title above to reach my website. The lyrics of the song have some inspirational references appropriate to our present predicament.
If I did buy a new home at a higher price on hindsight I will simply chalk it up to experience and comfort myself by telling yours truly that I might not have bought the same one I like at any lower price as some else could have beat me in purchasing it first when the price becomes dirt cheap. Again, as said in my earlier blog - The Way Forward ( 3 ), it is more blessed to be the spender.
So, let us regain our collective CONFIDENCE by being the leaders in our CONFIDENCE BAND WAGON push. Counteract the bad effects of the CONTINGENCY DECISION MAKING process. Stick our necks out once in a while in the comfort of knowing that we are in a way minor heroes who made sacrifices for the great and noble cause of rebuilding CONSUMER CONFIDENCE. Who knows ? We may even land ourselves on some real good bargains whatever the product or service of your choice may be . Having a healthy sense of humour will go a long way in weathering any storm including the devastating FT.
So, let us heed the advice of the great FDR and boost our mutual confidence by FIGHTING FEAR FACE TO FACE. Be a rash running bull like me once in a while. The Ox or Bull ( if you prefer ) is the most auspicious animal symbol of the new lunar Year of the Ox ( if you believe in that kind of a thing ) that commenced on 26th of January, 2009 and will end some time in early February of 2010. I sincerely hope and pray that the global economy will be right on track to a full economic recovery by then though the present signs indicate that it may take a little while longer ( hoping that my predictions are wrong! ). May I wish everyone a healthy and peaceful Year of the Ox . Do substitute CHEERS for FEAR !
JKHC.
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