Reasons why bubbles occur?

>price (of whatever) goes up
>people see price goes up so they buy it
>because of this price goes up even more
>repeat for a while
and then usually after a while someone will realize the price doesn't even remotely reflect the true value of whatever, and start to sell, and then everyone sells and the bubbul is poppd

>>962351
Because there must always be a Lich King.

>>962351
In part, greed. The economy wants to continually improve. Companies want to continually improve. Individuals want the same. On an upward trend of profits, when an economy, a firm or an individual starts feeling friction, what do they do? They try to defy gravity, the opposing market forces. This might lead to increasingly unethical and more risky behavior.

>2008
>banks: Well guys, looks like we've lent to all the credible people already... should we let this limit our profits?
>banks: NO, just start giving loans to everyone to continue to increase profits.

>now?
>colleges: well guys, looks like we're approaching a plateau in regard to the number of highly credentialed highschool graduates to admit, should we let our profits plateau as well?
>colleges: NO, admit more less qualified highschool students that will statistically not be able to find jobs and not be able to payback their loans.

sincerely,

an ignorant anon

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143KB, 834x626px

>>962362
>>962364
Good answers, but what about the fundamentals? What indicators can you see that a bubble is about to bust?

>>962366
>I am a dumb goyim
>please spoonfeed me
Look at the debt
https://www.youtube.com/watch?v=PHe0bXAIuk0

>>962372
I wasn't really interested in the aspect of debt, but thanks.

>>962378
>wants to understand about bubbles
>but nothing about debt
You've already failed - Just watch the video and work from there

>>962351
I'd recommend "This time its different" by Reinhart and Rogoff. Well written and very informative about financial bubbles

>>962378
bubbles are all about debt...

they're all about a derivative offering more liquidity than the underlying security.

>>962351
Read Marx's Capital, Volume 3, Part 3 about the tendency of the profit rate to fall. These bubbles and crises were explained, and were fleshed out more by Lenin and others later...

>>962351

Because groupthink, confirmation bias, and hype.

Why do celebrities become popular? Why do certain cars become popular? Why do certain fashion trends become popular?

Jesus Christ you are fucking dumb if you can't work this out yourself.

>>962366
An increase in inflation and interest rates are a sure sign that a bubble somewhere has burst.

>>962351
Also It's the government trying to artificially prolong the progress cycle of the cycle of capital. When you subsidize bad business behavior through government bailouts. you allow companies to get away with making bubbles.

In a free market, bad business practices would have failed,

recessions aren't bad. they are a healthy period of cleaning the market of bad business practices and allowing other competitors to fight over new territory.

>>962366
the gist of it, When you don't allow businesses to follow the wails of the market, if you don't allow businesses to fail. you create a bubble. because in actuality you didn't save them from failure but prolonged the sentence. because you supplant the notion that even if they continue the business practices that led them to fail, there's no consequence because the government will bailout their bad business practices.

>>962364
but those companies would have bankrupted if they loaned out money to people who couldn't pay them back.

because of leverage

>>963485
I agree, but you need some kind of social safety net so that when a recession happens people aren't out on the street and can recover quicker.

>>963558
It doesn't need it, Social Aid hasn't had a stellar record in regards to recovery.

Recovery is fueled by the sudden surge of capital saving behavior. by giving them loans (nothing is free) you'll be encouraging them of consumption rather than saving capital while imposing a loan to either them or their children.

>>963558
Heck the bubble in regards to real estate happened because of

1. real estate brokers wanting to give EVERYONE a 500,000 $ house. with the desire of the government to reduce homelessness
2. the government subsidizing the real estate market by giving EVERYONE, even non-credit worthy borrowers, a fcking huge loan for MORTGAGES.
3. the people who accepts these loans are obviously uncapable of paying the loans after they've used all of their profits to pay the mortgage.
4. government starts to default on the debt, beings to subsidize their loses by borrowing money from the IMF.
5. A bank that is gaining from this ponzi scheme of sending out sub-prime loans suddenly calls up for bankruptcy. For once American government was unable to give out a bailout.
6.Bank fcking defaults, creating a credit freeze that those who accepted the housing loan relied on to pay the mortgages.
7. and people unable tap the bank for the loans that they relied on, suddenly defaults on their responsibility to pay their bills,
8. Items repossessed. People sad, more homeless now and even worse they are saddled with huge amounts of debt.

Unbiased, purely factual, unbiased economic standpoint:

Low interest rates or easy access to credit causes large amounts of investment and output expansion. Growth ensues. Soon enough, something occurs to tick off the time bomb (it can be anything, but is always related to trust. If everyone believes that the economy is about to contract then trust goes down). Bubble pops, repeat.

This happens so regularly in today's time that we call it the 'business cycle' now. As to why on a deeper more abstract level, no one can exactly agree, but most economists confirm that it is due to too much tampering in the market by the fed and government. Thats Keynesian econ for you.

>>963491
That's exactly what happened in 2008 you moutherfucker.

>>963812
To add to your points...

It was investment banks creating subprime credit default swaps and mixing them with high quality swaps in disguise, then selling them to unknowing banks that added to the escalation and eventual massive downturn. It was more these banks at fault than the traditional loaning banks.

Also, the terms of the loans were bullshit. Interest rates were variable. And initially set low to attract customers. After one year, rates shot up on consumers.

>>962351
>why bubbles occur in economics. Could any one tell me in a simple way?

Financial markets are primarily run on psychology and sociology. Some markets are not rational in the LEAST.

People THINK or HOPE the price will continue to go up. And they're simply wrong.

That's a bubble.

When they get their collective shit together and realize that the price has gone up too high for too long, and they entertain the idea that "holy shit" this investment is bad, they dump it. It's a positive feedback system and there's a massive downswing.

That's a bubble bursting.

>>963836
why would they plan to increase interest rates immediately when that would result to the inability of their customers to pay back their loans? It doesn't make sense even in terms of making profit

I think that wasn't part of the problem. but on your other points maybe, I haven't heard of investment banks being capable of fooling banks to dole out sub-prime credit in such a scale. It might be possible though

>>963849
They increased interest rates because when they defaulted, the burden was placed on insurance groups, such as AIG. Take a look at AIGs stock from during the initiation of the crisis and through it. Investment banks fooled them for sure.

>>963838
The market itself is quite rational actually, because it all just follows the idea of supply and demand.

because of supply and demand, once a demand for a product cease, the companies profiting from it goes down. However the product that replaces demand will pull up other businesses.

In a free-market, the market regulates itself, This would mean a cycle of Growth and a cycle of liquidation. This has been called the cycle of capital.
However when someone tries to artificially tamper with the market. through governmental intervention it usually sets off a bubble. when they try to artificially enlarge and lengthen the growth cycle they also enlarge and lengthen the liquidation cycle.

>>963863
when we finally reach the end of the growth cycle, we will begin the sharp fall to the liquidation cycle. wherein people will switch from a consumer mindset, to a producer/capital saving mindset. And when the books are balanced and all bad investments liquidated, the growth cycle starts to ramp up using the capital saved during the liquidation cycle.

>>962351
people start buying because they think it will go up, there's really not much more to it than that