Where does all the money go?

In our boom and bust economic cycles, where does all the money go. Economists and financiers will tell you it doesn't go anywhere since it was all "paper profits" anyway. However, imagine if you have a crystal ball that will give you the timing of the boom and bust highs and lows. That would be as good as winning the lottery.

Well, the old money, the big money knows the game and profits from these cycles. That is how the rich get richer and the poor get poorer. One way to tell that a boom bubble is about to bust is watch for a rapid acceleration in house prices. The reason I say that is because this is the key to the last stage. When the capitalist buisinessmen cannot wring out enough "gap" between costs and sales they go into the markets and create what stock markets call a "pump and dump scheme". Initially the investors will start to slowly buy property in key areas (Property because 1. Its the single most expensive item most people purchase in a lifetime and 2. It is very illiquid which means its hard to offload a house quickly)

When the investors have managed to build up the momentum to be self sustaining the average Joe Public rushes to get on the bandwagon and extends himself as much as possible in case he misses the chance. Often as in the recent crisis the investors and old money find ways to lend money to people at a ration to earnings that would never be allowed in a sane market. This gives a second pump to already overheating prices. The investors buy a few more properties and wait. Then as if by a magic invisible concensus (conspiracy? you bet it is!), the property owners hit the bids in the market quietly and stealthily. For a while economists snf the media may ponder and talk about whether the current frenzy is about to end or whether it is just taking a breather for the next acceleration. The wise old money knows it is already over because they were the creators of it. Their portfolios already unloaded they bank the cash and sit on their profits which can be very large indeed.

The moral of this is, if its pumping - dump it. If its dumping, wait and buy it.