Why booms and busts are not failures but part of the eternal rhythm of the Tao
By Dave H. Huynh — Author of The Tao of Quantum Investing
The Seven-Stage Pattern That Keeps Returning
History has shown that financial markets, like nature itself, move in rhythmic cycles — from expansion to collapse and back again. The crash of 1929 followed a clear seven-stage sequence:
- Easy Credit — cheap money fuels rapid borrowing.
- Speculation Replaces Investment — excitement overwhelms prudence.
- Smart Money Exits — insiders quietly sell at the top.
- Peak and Hubris (“This time is different”) — valuation detaches from reality.
- The Crack — panic selling begins.
- The Cascade — credit freezes and the system implodes.
- The Aftermath — society rebuilds under new rules.
This seven-fold rhythm has echoed through history: the South Sea Bubble (1720), the Great Crash (1929), Japan’s collapse (1989), the Dot-Com bust (2000), and the Global Financial Crisis (2008). Each appeared unique, yet the pattern — from euphoria to humility — remained unchanged.
The Illusion of “This Time Is Different”
At every peak, a new story emerges to justify the excess. In 1929, radio and electrification were said to have changed the world forever. In 2000, the Internet promised unlimited growth — a “new economy.” And now, in 2025, analysts speak of the “AI Supercycle.”
There is truth in these revolutions. Each marks genuine technological progress. But progress does not erase the Tao of cycles. Even the rise of artificial intelligence — a paradigm shift as deep as the industrial or digital revolutions — will unfold through waves of boom and bust, not a single uninterrupted ascent.
“When Yang reaches its height, Yin begins to return.” — Lao Tzu, Tao Te Ching
The market, too, breathes in and out — expansion followed by correction — just as the universe itself alternates between creation and stillness.
From Pharaoh’s Dream to Wall Street
Long before the Federal Reserve or Wall Street existed, the rhythm of abundance and scarcity was already known. In the Book of Genesis, Pharaoh dreamt of seven fat cows devoured by seven lean cows. The Hebrew prophet Joseph interpreted it as seven years of plenty followed by seven years of famine. That dream was not merely prophecy — it was pattern recognition.
Egypt prospered not because it avoided the cycle, but because it prepared for it. Likewise, the wise investor stores grain in the good years — not out of fear, but out of understanding that abundance and scarcity are inseparable halves of the same whole.
Modern macroeconomics still echoes Joseph’s wisdom: economies tend to experience major expansions and recessions every six to seven years on average. The Bible, it turns out, was describing not only agriculture — but the universal law of cycles.
The Tao of Yin and Yang in the Markets
In Taoist philosophy, opposites are not enemies but complements. Yin and Yang represent the eternal dance of expansion and contraction — the market’s rise and fall, the human mind’s greed and fear. When Yang (growth, optimism, leverage) dominates, Yin (contraction, caution, correction) inevitably returns to restore balance.
Crashes, therefore, are not failures of capitalism — they are purifications of excess, a rebalancing of energy. They cleanse the illusion of infinite growth and allow genuine value to re-emerge.
To see this is to transcend fear. The Tao does not call us to resist the cycle, but to move with it — to invest when fear reigns and to withdraw when euphoria blinds, always keeping inner balance while the outer world oscillates.
The Eternal Rhythm
From Pharaoh’s dream to Joseph’s foresight, from Lao Tzu’s Tao to modern financial theory, the lesson is the same: The universe moves in cycles, not straight lines. The wise do not fight these rhythms — they learn their music and dance within it.
AI may change the tools we use, but not the law that governs them. The next great wave of technology will bring both extraordinary wealth and inevitable correction — not as tragedy, but as renewal.
“The market, like the cosmos, breathes — its rise and fall are the pulse of balance itself.”
Written by Dave H. Huynh
Author of The Tao of Quantum Investing
Exploring the intersection of Taoist philosophy, modern finance, and quantum thinking.
