The Crash of 2012
In high school history class, the Great Depression was explained. We were taught, essentially, that in 1929 there was a stock market crash, and after that, lots of people were desperately poor. Whilst this is true, the explanation is overly simplified to the point that there is no practical lesson we can learn from it.
Here’s what actually happened: In the autumn of 1929, the first in a series of waves occurred in the stock market – a downward wave. It was followed by a rally (upward wave), then a much deeper and longer downward wave. This third wave, in turn, was followed by a series of smaller upward and downward waves until the market hit bottom in 1932-33.
In studying these waves (Elliot Wave Theory), it becomes apparent that the same waves occur in any major market fluctuation, and the degree of downside is always relative to the degree of upside. The third wave is always the most extreme.
“The elementary truth is that the Great Depression was produced by government mismanagement [of money]. It was not produced by the failure of private enterprise.”
~ Milton Friedman