Capitalism is Boom and Bust

The current value of money is abstract, and it runs ahead of the global economy: based largely on an expectation of future value or income.

Periodically the economy must be reset to a realistic valuation: ultimately a current Price to Book Value ratio equal to 1. At this ratio, the whole market value is based on fixed assets, and we are no longer borrowing money from the future. Unfortunately, this is highly dependent upon the methodology employed in estimating the Book Value (BV).

This permits markets to take a more confident view as to how much of the expected value is actually real: based on current value of actual assets, and how much turned out to be purely based on unrealistic expectations.

Since Capitalism is driven by the search for future returns, the boom and bust cycle isn’t a side-effect, it’s an implicit requirement and a natural consequence of realising that there are no perfect markets.