Economic bubble

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An economic bubble is an economic cycle characterized by rapid expansion followed by rapid contraction (the bursting of the bubble).[1] During the expansion period of a bubble, people often buy assets in the belief that they will necessarily be able to sell them at a profit. Examples include tulip mania, the dot-com bubble, and the housing bubble.

"Over the past decade, we have added more than 10 trillion dollars[2] to the national debt. But most Americans have shown very little concern as the balance on our national credit card has soared from 6 trillion dollars to nearly 17 trillion dollars. Meanwhile, Wall Street has been transformed into the biggest casino on the planet, and much of the new money that the Federal Reserve has been recklessly printing up has gone into stocks. But the Dow does not keep setting new records because the underlying economic fundamentals are good. Rather, the reckless euphoria that we are seeing in the financial markets right now reminds me very much of 1929. Margin debt is absolutely soaring, and every time that happens a crash rapidly follows[3]. But this time when a economic crash happens it could very well be unlike anything that we have ever seen before. The top 25 U.S. banks have more than 212 trillion dollars of exposure to derivatives combined, and when that house of cards comes crashing down there is no way that anyone will be able to prop it back up. After all, U.S. GDP for an entire year is only a bit more than 15 trillion dollars."[4]

Contents

References

  1. Economic Bubbles: Understanding the role of bubbles in an economy
  2. http://www.treasurydirect.gov/govt/reports/pd/histdebt/histdebt_histo5.htm
  3. http://www.businessinsider.com/chart-margin-debt-bearish-signal-2013-5
  4. http://oathkeepers.org/oath/2013/05/22/america%E2%80%99s-bubble-economy-is-going-to-become-an-economic-black-hole

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