Re: [PEN-L] Definition of Economic bubble

[Devine, James]

in a bubble, the paper claims on wealth (stocks) never corresponded to -- and in fact exceeded the value of -- the actual wealth (factories, machinery, patents, etc.) It's the paper claims that get devalued when a bubble pops. The actual wealth doesn't disappear as part of the bubble popping, though they may be scrapped -- or may lose market value -- if the financial crisis leads to or triggers a real economic crisis.

Jim Devine [EMAIL PROTECTED] &  http://myweb.lmu.edu/jdevine



> -----Original Message-----
> From: PEN-L list [mailto:[EMAIL PROTECTED]]On Behalf Of Charles
> Brown
> Sent: Friday, October 29, 2004 6:21 AM
> To: [EMAIL PROTECTED]
> Subject: [PEN-L] Definition of Economic bubble
>
>
> When a large amount of wealth is destroyed, where does it go ? Poof ?
>
> Charles
>
> ^^^^^^
>
>
>
> Definition of Economic bubble
>
> http://www.wordiq.com/definition/Bubble_economy
>
>
> An economic bubble occurs when speculation
> <http://www.wordiq.com/definition/Speculation>  in a commodity
> <http://www.wordiq.com/definition/Commodity>  causes the
> price to increase,
> thus producing more speculation. The price of the good then
> reaches absurd
> levels and the bubble is usually followed by a sudden drop in
> prices, known
> as a crash.
>
> Economic bubbles are generally considered to be bad things
> because they
> cause misallocation of resources into non-productive uses. In
> addition, the
> crash which follows an economic bubble can destroy a large
> amount of wealth
> and cause continuing economic malaise as was the case of the Great
> Depression
> <http://www.wordiq.com/definition/Great_Depression>  in the 1930s
> <http://www.wordiq.com/definition/1930s>  and Japan
> <http://www.wordiq.com/definition/Japan>  in the 1990s
> <http://www.wordiq.com/definition/1990s> .
>
> Another important aspect of economic bubbles is their impact
> on spending
> habits. Participants in a market with goods that are over
> valued e.g. the
> housing market in the UK, Spain spend more because they "feel" richer.
>
> When the bubble occurs in equity markets, it is called a
> stock market bubble
> <http://www.wordiq.com/definition/Stock_market_bubble> . It
> is usually very
> difficult to differentiate a stock market bubble from an ordinary bull
> market <http://www.wordiq.com/definition/Bull_market>  until
> it is over.
>
> Examples of economic bubbles include:
>
> *       Tulipomania <http://www.wordiq.com/definition/Tulipomania>
> *       South Sea Bubble
> <http://www.wordiq.com/definition/South_Sea_Bubble>
>
> *       English Channels Bubble
> <http://www.wordiq.com/definition/English_Channels_Bubble>
> *       Railroads Bubble
> <http://www.wordiq.com/definition/Railroads_Bubble>
>
> *       Real estate <http://www.wordiq.com/definition/Real_estate>  is
> frequently a good example of economic bubbles:
>
>         *       the Florida swampland
> <http://www.wordiq.com/definition/Florida_swampland>  real
> estate bubble
>         *       Japanese real estate
> <http://www.wordiq.com/definition/Japanese_real_estate>  bubble boom
>
>         *       Internet bubble
> <http://www.wordiq.com/definition/Internet_bubble>
>         *       The UK 2003/2004 property bubble
> <http://www.wordiq.com/definition/The_UK_2003/2004_property_bubble>
>
> Other goods which have produced bubbles include beanie babies
> <http://www.wordiq.com/definition/Beanie_baby>  and postage stamps
> <http://www.wordiq.com/definition/Stamp_collecting> .
>
>
>