By: musicwhiz We have now come to a stage in the economic cycle which can best be described as "unbridled pessimism", if such a term actually exists. A few investing blogs such as Jeflin's have written about such events and how it has translated into pervasive fear in the stock markets. One would recall that not too long ago (perhaps just more than a year back), pundits and commentators were extremely positive about the global outlook and were thumping themselves on the back for predicting "explosive global growth". The same bunch of people are now falling over themselves to proclaim, in no uncertain terms, that we are in the worst financial crisis to befall us since the Great Depression. Not exactly a case of being very accurate and mystical, considering their lack of forecasting skill. But I will elaborate on the mechanism of pendulum swings and how it applies to capitalistic economies. As readers may know, a pendulum is a device which swings from one extreme (left) to the other extreme (right) and back again to left. This is known as one wavelength in physics and the swing of a pendulum can be likened to one complete revolution. Applying this to economies, one extreme of the pendulum would signify irrational optimism about the economy's future prospects - the belief that economies in capitalistic nations will continue to grow without stopping at a steady, constant rate. This view necessarily espouses the theory that excesses which are built into the system will be "flushed out" naturally by the process of competition and that equilibrium will be achieved in a smooth, sustained manner. Read more...