Upward journey!
The stock market today, a global financial system that has been the backbone of international trade for decades, is not without its flaws. This is evident in the numerous crises that have shaken the world's economies over the years. One of the most infamous crashes occurred in 1929, often referred to as the Great Crash. Despite numerous accounts of the event, there is no known film footage of the crash itself. The aftermath, however, was devastating, leading to the Great Depression and serious difficulties for banks in the United States. More recent crises, such as the European debt crisis and the dot-com bubble burst, have shown that the stock market today has the potential to cause total disaster and international trade havoc. The speed of transactions has increased significantly due to computers, with events that used to take days or weeks now happening in hours or minutes. This rapid pace can lead to a chain reaction, causing panic and rapid devaluation of all assets. If people start selling and panicking, everyone starts selling, and the markets can collapse. This is often compared to a solid cone that stands on its flat side, which will fall back to its original position if tipped, but a cone balanced on its point is in a very unstable state and can topple with the slightest nudge. This concept is known as unstable equilibrium, a term also used to describe an ice-cream cone balanced on its bottom point. The principle of markets being in a state of unstable balance still holds. There must be protection, safeguards, and emergency measures in place, but the inherent instability of the system remains. This is a reality that investors and policymakers must always keep in mind. The phrase 'What goes up, must come down!' is often used in relation to stock markets. While this is a simple truth, the unpredictability and speed at which the markets can crash can be terrifying. Fear of heights can prevent individuals from jumping during a stock market crash, but the potential for panic and rapid devaluation is always present. In mechanics, there are three basic types of balance: flat equilibrium, neutral equilibrium, and unstable equilibrium. The stock markets are believed to be inherently in a state of (near) unstable balance. This instability can be seen in examples such as a cylinder, sphere, cube, campfire, house of cards, row of dominoes, and a golf ball on a mound. The stock market system has the potential to cause total disaster and international trade havoc. However, it is a system that, when managed correctly, can drive economic growth and prosperity. Understanding its inherent instability is the first step towards creating a more resilient and stable financial system.
