Millennials Crashing the Economy

Dear Money & Crisis Reader,

The economy is a machine.

It may not have a physical form that we can bonk with a hammer. But, just like a machine, it’s made up of countless disparate pieces working together to achieve a common goal.

Like cogs turning, one industry’s productivity feeds into another. A certain government policy might oil gears. While another might jam up the works entirely.

It’s ugly. And complicated. And generally speaking it works most of the time. Lumbering along like Frankenstein’s monster in a three-piece suit.

Once about every eight years though, the whole system screeches to a halt.

And the monster falls flat on his face.

Why every eight years? Well, we’ll go into that in a moment. But first, I want to talk about how a machine like the economy can even break down in the first place.

Usually when a machine stops working, you simply take it apart, identify the broken pieces and replace them. But the economy is a much bigger, more complicated machine than a John Deer lawnmower.

From the biggest bank in New York… to a 54-year-old Cambodian man investing on the world’s smallest stock market… to government bailouts in a country you’ve never even heard of before…

It’s all part of “the equation.”

One cog spinning in the wrong direction can have a knock-on effect that jams up the whole works. But more often than not, that broken piece is part of a broken system of pieces.

And this makes identifying and removing the “problem element” very difficult to do.

For example, we know that an excess of subprime loans and banks acting like hedge funds played a big part in the 2008 financial crisis. But there were countless other seedy elements that contributed to the severity of the crisis.

And you know those folks escaped without blame or repercussions.

A History of Greed

While it’s practically impossible to hold everyone accountable for their misconduct, researchers have been able to identify the 26 financial behaviors that damage the economy and inevitably lead to financial crisis.

The study, conducted by the FICC Markets Standards Board, analyzed 200 years of financial crises from 19 countries.

This is just a snapshot of the 400 cases of market misconduct investigated by the FMSB.

According to the research, these 26 bad behaviors — which include and go far beyond insider trading and spoofing — are universal to every asset class in every country profiled.

Meaning this is not a cultural problem or class problem.

This is a human problem. Or maybe more accurately a generational problem.

You see what researchers found when studying these numbers is that the prevalence of these 26 bad behaviors was cyclical.

1. During a period of expansion, the finance industry hires a new wave of hotshot young bloods.
2. These young bloods discover the 23 bad behaviors and exploit them to make more money.
3. These behaviors weaken the economy and trigger a financial crisis.
4. The industry cracks down on these bad behaviors and the economy starts to grow.
5. During a period of expansion, the finance industry hires a new wave of hotshot young bloods.
6. Rinse. Repeat.

This is something of an oversimplification of complex economic movements, but you get the point.

The problem isn’t that folks don’t learn from their mistakes. The problem is that they do, but fail to pass those lessons on into incoming generations.

That’s why most countries can expect a major financial collapse once every 25 years and a recession every eight as the work force is refreshed and replenished.

“Somebody said to me things happen on a 25-year cycle,” Mark Yollop, chair of the FMSB, told Business Insider. “People’s careers are 25 years long… It was a flippant remark, but actually there is some truth in it.

“We’re not dealing with cases when a genius comes along and reinvents things (…) By nature of the structure and operations of the market place, people are roughly doing the same thing, so it’s not unusual or startling these things repeat.”

What does that mean for us?

It means a recession is not only inevitable… it’s imminent.

We’ve been in a period of expansion for just over eight years now. It’s only a matter of time before the generational cycle comes home to roost.

How’s your emergency fund looking?

All the best,

Owen Sullivan
Editor, Money & Crisis

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