Crash (n.) The sound of a bubble bursting.
Bubbles are, of course, a time-honored way of stripping an unwary and insufficiently cynical middle class of their accumulated prosperity. The standard way to create a bubble is to reduce on the one hand the benefits of ordinary rents on capital and property, and to promote on the other hand the benefits of more high risk "investments". The pyramid selling scheme engages specialists ("Wall Street") who promote the benefits of said investments, and who by flagrant displays of wealth convince the ordinary man in the street of the need to invest.
In a rising tide, an ordinary man feels poor, and the desperation of relative poverty will push people to take unreasonable risks with their hard-earned savings. The earliest investors will reap benefits as the bubble expands, and quite predictably, as the growth of the bubble reaches its nexus, the number of new investors begins to slow down, the flow of new money starts to fail, and people start to try to liquidate their investments, causing a sharp implosion, or "crash".
In 2008 we were witness to the popping of no less than five major bubbles, at least one of which has been a century in the making.
- First, the housing market, which deserves an article all of itself.
- Second, the technology sector, which offered spectacular gains - or losses - for those investors with an appetite for risk. Technology prices tend downwards, not upwards.
- Third, the banking sector, which reinvented itself through the 90's to become a major risk-driven industry, on par with the best of the Las Vegas casinos. But much, much larger. The risks are, of course, borne by the tax payer.
- Fourth, the US dollar bubble, in which the wealthiest country in the world managed to turn a multi-trillion dollar surplus into an epic deficit, by stripping the treasury through an endless series of casually extortionate war contracts. Pay to bomb the place, pay to reconstruct it. Rinse and repeat. Each time, another half a trillion moves from the public coffers to private equity.
- And last, the oil bubble, which started early in the 20th century and popped when oil hit a hundred dollars a barrel. The bubble economy of the 21st century could perhaps have lasted a little longer, but rising oil prices made that untenable. U.S. consumers simply could not pay off their credit card debts, mortgages, and still fill up their car to drive to work.