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| Financial bubbles have popped up throughout modern history—from Dutch tulip mania to the more recent sub prime lending boom. Our cartoonist Kal illustrates what makes them burst.
Click here to subscribe to The Economist on YouTube: http://econ.trib.al/rWl91R7 When the price of an asset rises faster than can be explained by economic fundamentals it creates a bubble. Famous bubbles include tulip mania in Holland during the 17th century, when the prices of tulips reached unheard-of levels and the South Sea Bubble in Britain a century later. Here speculators, which included a vast array of citizens including parliamentarians and the King’s mistress, drove up the share price of the South Sea Trading Company with disastrous results. There have been many others since, including the dot-com bubble in internet company shares that burst in 2000 and the bubble in house prices which, when it burst in 2007, helped to trigger the recent global economic downturn. Economists argue whether bubbles are caused by the irrational behaviour of crowds, aided in part by savvy speculators, or are the result of misinformed consumers who assume the inflated prices are sensible. Whatever their cause, bubbles do not last forever and often end not with a pop but with a crash. Daily Watch: mind-stretching short films every day of the working week. For more from Economist Films visit: http://films.economist.com/ |
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