Saturday, 3 November 2012

What Are Economic Bubbles?

What is one of the most exciting phenomenon of finance and economics? That's right - bubbles. Periods of hype, euphoria, mass hysteria, and case studies in crowd psychology - economic bubbles represent the extremes of some of the fundamental forces that drives the financial system, and the real economy. Through history there has been a wide array of bubbles; the tulip bubble, the 1920's stock market boom, and of course the dot com boom. This documentary from the open university focuses on the bubble where Internet companies were the hot new thing, attracting wild valuations - driven more by the belief in a new age (the new economy), rather than fundamentals or financial strength. These periods of boom provide excellent case studies in investor behavior, they can also be beneficial to society (i.e. when the bubble is driven by a new technology e.g. Internet, biotechnology), and of course some speculators can get rich during a bubble. But bubbles can also be disruptive and damaging - particularly in the case of credit booms such as the enormous credit and housing bubble in the mid 2000's which lead to the global financial crisis. Bubbles are a fascinating and exciting thing to study and experience, and through studying past bubbles we can develop insights on finance, economics, and for our own investing and wealth.

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  1. cool documentary, wonder what the next bubble will be... maybe green tech, or nanotechnology, or maybe a regional/country boom... bring on the next bubble :)

    1. Not "bring on the next bubble"! No way. It could easily by education and federal loans. Lots of people are defaulting on those. Without our repayments they'll tighten the purse strings and there will be fewer future loans, fewer people able to go to school, and on and on.