On its maiden voyage the RMS Titanic hit an iceberg and sank on April 15, 1912. Of the estimated 2,224 passengers and crew, more than 1,500 died.
The ship was sailing farther north at a higher speed than would have been “normal” maybe to break the trans-Atlantic speed record. Warnings from other vessels of icebergs in the area may have been ignored. The ship only carried enough lifeboats to accommodate about half the people on board.
Substandard rivets joining the ship’s plates may have been used in the welding process. The Titanic had a “double bottom” but not a double hull that is common today. Had the water-tight compartments been extended the length of the ship, the hull breech might have been contained.
But all of that is the “how” of the sinking, not the “why.” The reason the Titanic went down was because the ship was “unsinkable.”
Years before the actual voyage, Titanic Captain EJ Smith—who went down with his ship—said “I cannot imagine any condition which would cause a ship to founder. Modern shipbuilding has gone beyond that.” One British newspaper on the day the Titanic left on its voyage wrote, “Thus undemonstratively was born this the most marvelous creature yet conceived by the art of naval architecture and the science of marine engineering.”
An apocryphal story sums the situation up nicely. An unknown Titanic crew member is reported to have said to passenger Mrs. Sylvia Caldwell, “God Himself could not sink this ship!”
I spent three months in the late 1970s reading the New York Daily Newspapers to understand the stock market crash of October 1929. I wanted to see if there was any clue, any comment that could have foretold the future. There was not. Everything seemed normal. It was not.
And like Captain Smith, Yale economist Irving Fisher said nine days before the crash, “Stock prices have reached what looks like a permanently high plateau.” But like all good economists, Fisher did not go down with the ship. He wrote books and became a strong advocate of vegetarianism and alcohol prohibition.
In July 2005, the Chairman of the Council of Economic Advisers and future Federal Reserve Chairman Ben Bernanke said, “We’ve never had a decline in house prices on a nationwide basis.” Two months before Fannie Mae and Freddie Mac collapsed he predicted that “they will make it through the storm.” And on August 2, 2010, “The financial crisis appears to be mostly behind us, and the economy seems to have stabilized and is expanding again.”
Ships sink and asset bubbles burst when “everybody” thinks that they cannot.
You and I make “life and death” decisions nearly every day. I have lived almost 25,000 of those days, and never once did I stop my car on a railroad track with an oncoming train or make a wrong turn into Manila Bay. When you know the risks, you can adjust and prepare for them.
The point is that regardless of all the “facts” that prove the sovereign debt, stock, real estate, commodity (take your choice) markets are in “bubbles” and ready to break, bubbles do not burst when the risk is recognized as it is now.
Further, the coming economic problems are not about economics. The government elite in the West ignored the political chaos of the past four years. They will reap the economic chaos in the next four years.
E-mail me at mangun@gmail.com. Visit my web site at www.mangunonmarkets.com. Follow me on Twitter @mangunonmarkets. PSE stock-market information and technical analysis tools provided by the COL Financial Group Inc.