Don’t Miss the Signs of Another Slow-Motion Meltdown
Don’t Miss the Signs of Another Slow-Motion Meltdown by Jim Rickards – Daily Reckoning
If you’ve ever lived through a life-threatening emergency — whether a car crash, train wreck or a steep fall (hopefully not) — you have noticed that time seems to slow down.
You witness your personal jeopardy in slow motion. A memorable example of this is the film The Matrix, in which the hero, Neo, could dodge bullets since time moved in slow motion for him.
According to the best science, time does not actually slow down for those in jeopardy, nor do their perceptions slow down. What happens is that the stress and novelty of the experience causes the brain to create extra layers of memory, a saturation effect, compared with everyday experiences.
According to researcher David Eagleman, “The more memory you have of an event, the longer you believe it took.” So yes, time does seem to slow down in a crisis, but it’s a cognitive illusion.
That slowing down effect is important to bear in mind as we encounter the 20th anniversary of the Russia-LTCM financial crisis of September 1998 and the 10th anniversary of the Lehman-AIG financial crisis of September 2008.
For investors, those events were the financial equivalent of falling off a tall building or being strapped in during a plane crash. If you lived through them, you’ll recall some hours that seemed like days and days that seemed like weeks.
Of course, investors recall where they were and what they did during the absolute height of the panics — Sept. 28, 1998 and Sept. 15, 2008.
Most investors may not be aware that these peak panic moments had actually been playing out for over 15 months in both cases. Investors who closely observed the early signs of trouble had ample time to get out of the way of the panic itself.
In fact, most investors were oblivious to the early warnings. That 15-month build-up was a real slow-motion event, not an illusion.
The September 1998 Russia-LTCM crisis began in June 1997, 15 months earlier, when Thailand devalued its currency and closed its capital account.
For several years, Thailand had maintained a fixed exchange rate to the U.S. dollar. Money poured into Thai real estate and resorts to earn high yields with an exchange rate guarantee. When some investors started to pull their money out, a run on the bank emerged.