Tuesday, January 13, 2015

My thought to: Opinion Journal: What Caused the Financial Crisis?

My thought to: Opinion Journal: 
What Caused the Financial Crisis?

In this short 5 minutes video an expert brings on the topic of what caused financial crisis. The response was primarily to the government having loans with low down payment.

If you categorize financial crisis based on "crisis theory" it will be categorized under maturational crisis, which means a crisis that developed in the normal increase of stress, and it is predictable.

Maturational Crisis is caused by a role change or inability to change the role.

So who's role did not change in response to what?

Just like Robert Kiyosaki says, August 15, 1971 is probably the date we need to go back to the reason for our role change.

This is the date, president Nixon took money off the gold standard and money became debt based "currency." (see more on http://www.historycommons.org/context.jsp?item=financial_crisis_1).

This means the role of "money" changed and we as people needed to adapt to this new rule and change our role.  It is like a baseball changing to a tennis ball, or a kitchen knife changing to a paper cutter. Although it seemed similar, it was a drastic change.

As a result people continued to work and use money as if it was "money", something that would not change in its value.  However, inflation shows that the value has been changing, which for those who did not adapt to the new rule, relied on "dept" to survive.

Dept in this scenario is stress. Increase in dept of individuals, families, communities, counties, states, and the country has led to a point of crisis to release the stress somehow.  And this is financial crisis.

Interestingly, as I mentioned above maturational crisis are predictable.  And indeed, the U.S.' financial crisis is also some what predictable.  Just like every dept based country has gone bankrupt the results are determined.  You don't need a genius to imagine what happens when you keep on borrowing money which does not create any income/asset.

So, Taka! When is it going to happen?

Good question.  If you have any literacy on reading charts for stock, then those investors and traders have been aware of what is going on. (see: http://www.forbes.com/sites/chriswright/ 2015/01/13/sell-sell-why-the-sp-500-will-halve-in-2016/)

Although, it is out of topic, let me do a quick analysis of the candle stick chart pattern for S&P 500.  The resistance (the highest value attained) is 2088.50 on December 29, 2014. Next is 2062.00, on January 8, 2015 (based on investing.com).  Okay, if there is an upward trend usually chronologically we should be seeing a higher number than 12/29/2014.  Now the next point is 1984.25 on January 5, 2015.  If we ever penetrate lower than this number we need to be aware for the big down fall.

Make sure you change your "role" of your retirement fund and investment (i.e., change to sell from hold). That is at least what we can do for prevention of financial crisis.  

If the market goes above 2088.50 then we have little more time to breath.

So, what is my opinion as a psychologist about the cause?  It is lack of prefrontal cortex use among the mass, meaning the lack of flexibility to shift thinking patterns and decision making knowing that the rule have changed.  Or lack of awareness to the fact the rule has changed (which is also a prefrontal cortex weakness).

Strategies will be to set alerts on Yahoo! Finance if you do have an Yahoo account or have Google alerts to send you information about S&P 500. Also, news related to such economical crisis is a good alert to have as it is predictable.

Oh, for those who want to take advantage of it, when stock market begins moving down, buy the stock in about 2 years when "usually" it is at the lowest possible.  Thus, saving money for investment from now may not be a bad idea.  That is how John Templeton became a millionaire after the Word War I (see: http://www. templeton.org/sir-john-templeton/life-story).

Can you turn this crisis to an opportunity?

See video at: http://www.wsj.com/video/opinion-journal-what-caused-the-financial-crisis/4395C507-D179-436F-B286-6C66A1B9524C.html

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