Monetary Bubble

Extracted Attributes

• Definition

  An economic cycle characterized by the rapid escalation of market value, particularly in the price of assets, far exceeding their intrinsic valuation.

• Consequences

  Bubble burst (rapid decrease in value/crash), economic stagnation, accumulation of non-performing loans, significant financial losses, economic downturns (e.g., Great Depression, Lost Decade).

• Common Causes

  Excessive monetary liquidity (easy credit, large disposable incomes), expansionary monetary policy (lowering interest rates), lax lending standards, speculation, transformative technologies, social contagion, lack of regulation, human desire for wealth.

• Characteristics

  Rapid acceleration of asset prices, overheated economic activity, over-confidence, speculation.

• Modern Parallels

  Massive investment in Artificial Intelligence (AI), leverage in private credit markets.

• Historical Examples

  Japanese asset price bubble (1986-1991), Stock Market Crash of 1929, Tulipmania (17th century).

• Stages (The Decision Lab)

  Displacement, Boom, Euphoria, Burst.

Timeline

• General Motors pioneered Consumer Credit, changing American aversion to debt and contributing to the setup for the Stock Market Crash of 1929. (Source: Related Documents)

  1919

• Stock Market Crash, triggered by a speculative bubble, leading to the Great Depression. (Source: Summary, Related Documents)

  1929

• Beginning of the Japanese asset price bubble, characterized by greatly inflated real estate and stock market prices. (Source: Wikipedia)

  1986

• Nikkei stock index plummeted to half its peak by the time of the fifth monetary tightening by the Bank of Japan. (Source: Wikipedia)

  1990-08

• End of the Japanese asset price bubble, with other asset prices beginning to fall by late 1991. (Source: Wikipedia)

  1991

• The Japanese asset price bubble visibly collapsed, leading to a decade-long economic decline known as the 'Lost Decade'. (Source: Summary, Wikipedia)

  1992-01

• Japan's average nationwide land prices finally began to increase year-over-year, with a 0.1% rise over 2017 price levels. (Source: Wikipedia)

  2018

• Discussions about whether massive investment in Artificial Intelligence (AI) constitutes a similar monetary bubble, with parallels drawn to leverage in private credit markets. (Source: Summary, Related Documents)

  Present

Japanese asset price bubble

The Japanese asset price bubble (バブル景気, baburu keiki; lit. 'bubble economy') was an economic bubble in Japan from 1986 to 1991 in which real estate and stock market prices were greatly inflated. In early 1992, this price bubble burst and the country's economy stagnated. The bubble was characterized by rapid acceleration of asset prices and overheated economic activity, as well as an uncontrolled money supply and credit expansion. More specifically, over-confidence and speculation regarding asset and stock prices were closely associated with excessive monetary easing policy at the time. Through the creation of economic policies that cultivated the marketability of assets, eased the access to credit, and encouraged speculation, the Japanese government started a prolonged and exacerbated Japanese asset price bubble. By August 1990, the Nikkei stock index had plummeted to half its peak by the time of the fifth monetary tightening by the Bank of Japan (BOJ). By late 1991, other asset prices began to fall. Even though asset prices had visibly collapsed by early 1992, the economy's decline continued for more than a decade. This decline resulted in a huge accumulation of non-performing assets loans (NPL), causing difficulties for many financial institutions. The bursting of the Japanese asset price bubble contributed to what many call the Lost Decade. Japan's average nationwide land prices finally began to increase year-over-year in 2018, with a 0.1% rise over 2017 price levels.

Web Search Results

• Economic bubble - Wikipedia

  An economic bubble (also called a speculative bubble or a financial bubble) is a period when current asset prices greatly exceed their intrinsic valuation, being the valuation that the underlying long-term fundamentals justify. Bubbles can be caused by overly optimistic projections about the scale and sustainability of growth (e.g. dot-com bubble), and/or by the belief that intrinsic valuation is no longer relevant when making an investment (e.g. Tulip mania). They have appeared in most asset [...] According to the explanation, excessive monetary liquidity (easy credit, large disposable incomes) potentially occurs while fractional reserve banks are implementing expansionary monetary policy (i.e. lowering of interest rates and flushing the financial system with money supply); this explanation may differ in certain details according to economic philosophy. Those who believe the money supply is controlled exogenously by a central bank may attribute an 'expansionary monetary policy' to that [...] One possible cause of bubbles is excessive monetary liquidity in the financial system, inducing lax or inappropriate standards of lending by the banks, which makes markets vulnerable to volatile asset price inflation caused by short-term, leveraged speculation. For example, Axel A. Weber, the former president of the Deutsche Bundesbank, has argued that "The past has shown that an overly generous provision of liquidity in global financial markets in connection with a very low level of interest

• Economic Bubble - The Decision Lab

  The term “bubble” is used to describe the rapid inflation of market value, which is typically followed by an equally rapid decline in value – which may be referred to as a “bubble burst.”1 This happens when the price of a good surpasses its intrinsic value. While some bubbles may be identified as they occur, or even predicted beforehand, they are often only identified after the fact.2 [...] There are five stages of a financial bubble.3 The first is displacement, the stage which gives rise to the bubble. Here, investors take note of something new and exciting, such as low interest rates or a novel technology. The second stage is the boom, in which steadily climbing prices suddenly skyrocket upward, attracting media attention and new investors alike. Third is euphoria, a blissful stage in which prices continue to climb and people are swept up in the belief that no matter how high [...] Throughout history, there have been several instances identified as financial bubbles. The Dutch Tulip Bubble, or Tulipmania, is regarded as the first major financial bubble, dates back to the 17th century.4 In the late 1500s and early 1600s, tulips were regarded as a sign of affluence. A rare type of tulip, which flowered in a striped, multicolored pattern, rather than the usual solid coloration, was particularly coveted. The high demand for this rare variety of tulip bulb caused the market

• Understanding Economic Bubbles: How They Form and Burst, With ...

  ### Key Takeaways A bubble is an economic cycle that is characterized by the rapid escalation of market value, particularly in the price of assets. This fast inflation is followed by a quick decrease in value, or a contraction, that is sometimes referred to as a "crash" or a "bubble burst." Bubbles are typically attributed to a change in investor behavior, although what causes this change in behavior is debated. [...] An economic bubble occurs any time that the price of a good rises far above the item's real value. Bubbles are typically attributed to a change in investor behavior, although what causes this change in behavior is debated. Bubbles in equities markets and economies cause resources to be transferred to areas of rapid growth. At the end of a bubble, resources are moved again, causing prices to deflate. [...] Economy Government and Policy Monetary Policy Fiscal Policy Economics View All Reviews Best Online Brokers Best Crypto Exchanges Best Savings Rates Best CD Rates Best Life Insurance Best Mortgage Rates Best Robo-Advisors Best Personal Loans Best Debt Relief Companies View All Trade Search Search Please fill out this field. Search Search Please fill out this field.

• [PDF] Bubbles and Central Banks: Historical Perspectives

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• Bursting The Myth: Understanding Market Bubbles

  In summary, the term bubble is often overused in financial markets, leading to misconceptions about usual market behavior. While bubbles represent extreme cases of unsustainable price increases unsupported by fundamentals, most market movements can be better understood as part of market cycles. The analogy of a balloon rather than a bubble helps to illustrate the capacity of markets to function with some exuberance and to expand and contract without catastrophic failure. It also acknowledges [...] The term bubble in asset markets evokes images of rapid wealth accumulation, fueling a mania around an asset, ultimately followed by significant financial losses when the bubble bursts. This phenomenon has fascinated investors and economists for decades. Financial pundits frequently use the term across various topics—stock market bubble, AI bubble, real estate bubble, college tuition bubble—to the point where it seems everything is labelled a bubble. But what exactly is a market bubble, and how [...] It's important for investors to distinguish between market bubbles and regular market cycles. Market cycles are driven by fundamental economic factors and are an inherent aspect of market dynamics. In contrast, a market bubble is marked by unsustainable price increases unsupported by underlying fundamentals. When the bubble bursts, prices crash, causing significant and often permanent losses for investors.