A pattern: policymakers in Europe and the U.S. do not make hard decisions unless the markets force them to do it. A crashing stock or bond market really gets their attention and forces them to make political compromises and act.
The plot continues: once the officials act, markets rally. Now, if the markets knew the policy response in advance, there would not be a crash to begin with. So there never really needs to be a crash, does there? But, on the other hand, if markets didn't crash, then policymakers would never act. So then, yeah, there does need to be a crash, even though it will be followed by a recovery.
The equilibrium state seems to be dynamic rather than static: a crash, followed by policy response, followed by a recovery in the markets, followed by new problems, another crash, a new policy response, another recovery, and so on. Sort of like the propagation of a wave, with peak causing trough, and vice versa.
I am, of course, over-simplifying massively and almost comically. For one thing, there are problems too big for any economic policy response to patch over (e.g. a big war, or, here's a depressing thought, a famine that wipes out a significant part of a country's population). And there is a mix of things making securities prices change, with sheer randomness being among them. My hypothesized cycle is only one of the things going on.
Still, the crash-response cycle is, I suspect, a part of the mix. It seems too dilute to have direct usefulness for investing, but I find it interesting intellectually. It may be good to be aware of simply for the purpose of keeping one's self from getting caught up in the emotional swings.
