Once Bitten.

Whew. I just read a really good article in this month's edition of the "Stockman Grassfarmer", written by Alan Nation. The article caught my attention on several points, but I want to focus on one here and add some thoughts of my own. This involves the idea of envy and how it is the root cause of "bubbles" in economic terms.

There has been a lot of talk, recently, about the big real estate bubble burst and how it is adversely affecting the banking world. I fear that the ramifications of this bubble burst reach much farther than the major news media are letting us in on. Thus, these things tend to pique my interest and cause pause for thought.

The Wall Street Journal recently did an article on this subject, analyzing what causes commodity price bubbles. (I must add that I have not seen the article myself, but trust Mr. Nation's integrity in his use of said article.) Again, this subject is heavily on the public mind as we are staring high fuel prices, real estate troubles, banking troubles, high risk lending and hyper inflation in the face.

Basically, the conclusion the Wall Street Journal came to is that the cause that drives a boom into a bubble is that few of us (Americans) can stand to see our neighbors and friends get rich through no effort on their part. I have friends like this, and have fallen victim, myself. We can't stand to see people we know succeed with very little effort and we want in on the action. This is evident, in my opinion, through the real estate boom and subsequent bubble burst. Joe down the street purchases a house with no money down (high risk lending), goes to sleep and wakes up with $10,000 increase on that investment, then flips the house (sells it) with a nice profit. He can now avoid the capital gains taxes by purchasing another home and the cycle begins. Or, Joe can avoid taxes by borrowing against the equity in that home (more high risk lending). John, up the street watches this take place. He sees Joe with a new boat and is even taken out on the lake for a fishing trip with Joe. John is now listening to Joe talk about how easy it is to make money this way and the envy bug bites. The trend now begins and moves the market toward the bubble as everyone tries their hand in the game.

Conversely, we don't envy our friends that make their fortune through hard work and saving. Americans seem to have adopted, in recent history, the idea that hard work and saving is beneath us. We envy those who get rich while sleeping. How many "get rich quick" schemes have you, at least, listened to in your life? I can say that I have listened to a few and bought into even less, although, I have tried once or twice.

Commodities, while high, are not yet in bubble mode. However, analysts suggest that this could take place next year for many reasons.

One is that commodities have, traditionally, run on a 29-30 year cycle. Past peaks occurred in 1920, 1951, and 1980. If the cycle holds true, this would mean in 2009-2010 should show another peak.

Alan Nation says "Given time, capitalism is highly efficient in erasing commodity shortages of all kinds. Consequently, all commodity bubbles eventually pop."

The advice Mr. Nation gives is to keep your wits about you when the bust comes. Save your money and don't fall victim to the envy bug. There will be lots of good farm land for sale in 2012 and after, upgrade then.