![]() "Stabilizing an Unstable Economy." McGraw Hill Professional, 2008.įederal Reserve Bank of St. Current Account."įederal Reserve History. " The Dot-Com Bubble, the Bush Deficits, and the U.S. " The Great Recession and Its Aftermath." " Japan’s Lost Decade: Lessons for the United States in 2008."įederal Reserve History. Even worse were leveraged housing bubbles, like the one that popped in 2006-07, leading to the subprime mortgage crisis that kicked off the Great Recession.Īmerican Enterprise Institute. Debt-fueled equity bubbles led to longer-lived recessions. The study found that the more credit involved, the more damaging the bubble's pop. It categorized them into four types, but along two basic lines, based on credit-that is, how funded investments were by financing and borrowing. A major 2015 research study, " Leveraged Bubbles," examined asset bubbles in 17 countries, dating back to the 1870s. And, of course, how much investment money is involved.Īnother factor: to what degree debt is involved in inflating the bubble. a significant sector like, say, tech stocks or residential real estate. Much depends on how big the bubble is-whether it involves a relatively small or specialized asset class, vs. Sometimes the effect can be small, causing losses to only a few, and/or short-lived.Īt other times, it can trigger a stock market crash, and a general economic recession, or even depression. Cognitive dissonance: only accepting information that confirms an already-held belief, and ignoring anything that doesn'tĪ range of things can happen when an asset bubble finally bursts, as it always does, eventually.Short-term thinking: just looking at the immediate returns, or thinking you can "beat the market" and time a quick exit. ![]()
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