Saturday, September 13, 2014

Mythology of bubbles



Thought for the day

”I have been impressed with the urgency of doing. Knowing is not enough; we must apply. Being willing is not enough; we must do."

-          Leonardo da Vinci (Italian, 1452-1519)

Word for the day

Geep (n)

The hybrid offspring of a goat and a sheep

(Source: Dictionary.com)

Teaser for the day

If BJP makes a government in Delhi and works for common good, in 2018 no one will remember how the government was formed.

For all you know AAP may not even be there to remind people! 

Mythology of bubbles

In Hindu mythology, once the forces of good (Sura) and evil (Asura) had a protracted battle. The battle lasted so long that both the groups exhausted all their resources and valor. Completely tired, wounded, frustrated and exhausted, they approached the savior Lord Vishnu. The Savior advised them to go and explore the great ocean to find new resources and vigor to make a fresh beginning.

Following the advice, both the groups went to the great ocean and explored it extensively. During their exploration they discovered huge amount of wealth and resources that included the nectar that would immortalize the consumer and venom that would destroy whoever consumes it.

Realizing that if the evil forces get the access to nectar and other resources found during the exploration it would seriously jeopardize the interest of the forces of good, Lord Vishnu tricked the forces of evil and appropriated the entire nectar for consumption by the forces of good.

Lord Vishnu also requested the almighty Lord Shiva to absorb the venom so that it does not harm anyone and the balance of the universe is maintained. Obliging, Lord Shiva drank the entire venom and preserved it in his throat.

Post this the forces of good became more powerful. But whenever they deviated from the path of common good, they were overpowered by the evil forces and dethroned. Each time only after a great deal of repentance they would be rehabilitated with the help of Lord Vishnu, Lord Shiva or the Mother Supreme.

Over the years I have realized that it is not just a mythological story to be heard during religious ceremonies and forgotten immediately thereafter. It is also not a usual morality emphasizing victory of good over evil. It is much beyond. This applies to all aspects of life, even economics.

In modern economic parlance, the ocean exploration is akin to the period of irrational exuberance that eventually lead to building of a 'bubble' in the economic sphere.

Bubbles are initiated when all the participants get tired, frustrated and exhausted from prolonged economic weakness. At that point in time, all the stakeholders muster the courage and supported by the 'authority' do things they would never do in normal times. They do excessive and seemingly irrational borrowing, investing and spending. Capacities are built to the scale unfathomable during normal times.

The nectar or the good that emerges from these bubbles is shared by all. However the venom is consumed only by the financial investors who invariably end up poorer after every bubble is burst.

If you are not able to correlate to what I am saying - imagine would India be a ITeS superpower without Y2K or technology bubble during late 1990s! Had we built so many houses, roads, malls, power plants, cement plants etc. during last decade but for a credit bubble! Would capital be so easily and cheaply available to Indian entrepreneurs without a QE bubble in the west! ...to continue tomorrow

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