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Bubbles require rapid credit expansion. There may be varied reasons for what fuels a particular bubble, but the necessary precondition is easy money/credit. W

• simpleTruth 16y ago
  The largest and least stable bubbles are often driven by credit but there is a wide range of causes. For example, one of the largest and less talked about bubbles comes from the shift from defined benefit plains to 401k style investing. In the mid-1980s there were fewer than 8 million participants with less than $100 billion of assets in 401(k) plans.[3] By 2006 there were seventy million participants with more than $3 trillion of assets in 401(k) plans. Now, what happens to the US stock market as baby boomers retire and there is a significant shift between people buying and selling stocks? PS: Many bubbles are simply money looking for somewhere to hide. Assume the US cut it's military budget by 80% and paid of the debt in 20 years, where do you think that money would end up?
• jbooth 16y ago
  I'd recommend looking at a chart of GDP from before the Fed was established for the express purpose of mitigating boom/bust cycles. It looks like a jigsaw. If you look at a chart of actual numbers, it's pretty clear that the countercyclical tools available to the fed diminish the effect of bubbles.