Cycles of Cash

Vox Day already had his comments about a certain article (in which he ripped the poor soul apart), but I have something quick to say about it as well.

The article in question criticizes the Austrian economist's view of how the bubble happened and what the US should do now. I really want to zero in on the following that Paul Krugman wrote:

Call it the overinvestment theory of recessions, or "liquidationism," or just call it the "hangover theory." It is the idea that slumps are the price we pay for booms, that the suffering the economy experiences during a recession is a necessary punishment for the excesses of the previous expansion.
[...]
Powerful as these seductions may be, they must be resisted—for the hangover theory is disastrously wrongheaded. Recessions are not necessary consequences of booms. They can and should be fought, not with austerity but with liberality—with policies that encourage people to spend more, not less.

It's funny, and I don't mean to bash on Paul Krugman or anything, but I wonder if he really does have a handle on how Wall Street bubbles are created.

The article I'm taking my ideas from might not be totally correct, but at the same time, it seems to make logical sense.

A bubble is created when investors see something, buy it, and sell it for more. Other investors buy it, turn around, and sell it for more, too. Pretty soon, investors see that the price of the thing is going up, so they too buy the thing, turn around, and sell it for more. At this point in time, it's a big happy party because prices go up as money flies everywhere. One might expect lamp shades to be atop everyone's heads (not just because people seem blind to the inevitable outcome).

However, eventually people find that the prices are too high, or don't think they can turn around and sell the thing for more than they're going to buy it for. Spending slows down. The people who have the things realize that they're not worth as much as the ticket they're holding says they're worth, so they desperately lower their prices in an attempt to get the stuff off their hands. Pretty soon, the party's over, and now all of that borrowed money or those future prospects of selling are gone. Kaput. No more future assets, and the current assets we have are grossly overvalued. That is, until they're reassessed and we realize that we're just trying to pawn off trash.

So yes, Mr. Krugman. It logically follows that recessions follow booms. But doesn't it follow that booms follow recessions as well? Doesn't it follow that we shouldn't tinker with the system, because it will eventually fix itself?