What do you know about the 20's?
Bobbed haircuts and the jitterbug are all most people can remember from our 10th grade history classes, but the 20's were a time of unprecedented economic growth. For the first time, people were earning money that wasn't going right back out the door to pay the bills. With all this loose change floating around, people were faced with a choice they'd never encountered before: spend or save.
The savers changed little. They drove the same cars. The stayed in the same houses. They ate the same food. The spenders, however, were not content to squirrel their money away for when they needed it. In their view, they needed it now. They needed better and bigger cars. They needed bigger and better houses. They needed more and better food. So they spent until they didn't have any more, but not having any more was no longer an option for these people so they turned their thirst for the almighty dollar to places that would give them money...for free!
It was like free money. All they had to do was walk into a bank and say, "I need $2,000," and the bank wrote them checks. WooHoo! Who cares about that small percentage they'd have to pay? The economy was running wild so everyone knew they'd make that money back. Everybody knew the economy would never slow down. Why would it? Things were great.
Now, we know better. Irresponsible stock market speculation led to nationwide panic. People sold so much stock to keep from losing a little in a downturn economy that the drop in stock value was exaggerated to the extent that everyone feared that all the money was running out.
The spenders were in debt, so the banks couldn't get their money back, and the savers got hosed, because it was their money that the banks had lent out.
Global economic depression followed.
The 80's were similar to the 20's. People had free money again and forgot to pay attention in 10th grade history.
They knew the market would keep gaining ground. They knew prices would never do anything but rise.
The stock market crashed again on October 19, 1987. Again, stock market speculation was the main culprit.
Did you know that you can by futures in crude oil?
It's true. You can buy and sell crude oil by the barrel on the stock exchange. On March 30, 1983 crude oil futures began trading in New York, but until recently, the prices have been mostly subject to standard supply and demand market forces. People needed gasoline, so prices went up. Now, the main influence in the cost of a barrel of crude oil is the futures market. Now, emotions rule the day. The price of a barrel of crude oil goes up because the majority of the market believes that it will go up. The price of a gallon of gas goes up, because the price of the crude goes up. The cost will never come down
Now we know this price will continue to increase. We know that there's no chance the price will ever come back down. We know this...just like we knew the market would never slow down in the 20's, and just like we knew the market would never slow down in the 80's.
Get ready people. That bubble will burst, and it won't matter if you're a saver or a spender. It will not be pleasant.