An economic bubble occurs when speculation in a 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 in the 1930s and Japan in the United Kingdom, Spain spend more because they "feel" richer.
When the bubble occurs in equity markets, it is called a stock market bubble. It is usually very difficult to differentiate a stock market bubble from an ordinary bull market until it is over.
The cause of bubbles in some dispute. Some regard bubbles as related to inflation and thus believe that the causes of inflation are also the causes of bubbles. Others take the view that there is a "fundamental value" to an asset, and that bubbles represent a rise over that fundamental value, which must "inevitably" return to that fundamental value. Finally there are xaotic theories of bubbles which assert that bubbles come from particular "critical" states in the market based on the communication of economic actors.
The bubble in property values would not have been significant except for the fact that the use of land as collateral for loans and the fact that the taxing authorities tend to use those peak prices in valuing property subject to the inheritance tax.
One of the scandalous incidents of the BubbleEconomy is the discovery that the prestigous Industrial Bank of Japan (IBJ) lent 240 billion yen to an Osaka restaurant owner, Onoue (Nui), on the basis of forged certificates of deposits.
Although the BubbleEconomy ended essentially in 1990 it wasn't until January 29, 1993 that a Japanese prime minister acknowledged that the "BubbleEconomy" had collapsed.
Economic bubbles are generally considered to have a negative impact on the economy because they cause misallocation of resources into non-optimal 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 in the 1930s and Japan in the 1990s.
Some regard bubbles as related to inflation and thus believe that the causes of inflation are also the causes of bubbles.
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