•Economic bubbles occur when the price of an asset is driven up artificially and becomes disconnected from its underlying value.
•Five major economic bubbles in history include Tulip mania, the South Sea bubble, the dot-com bubble, the housing market bubble and Bitcoin.
•These bubbles often cause widespread losses for investors and can have a large negative impact on the overall economy.
What is an Economic Bubble?
An economic bubble is a time of fast economic expansion that is driven by speculative enthusiasm and excessively high asset prices. A bubble is characterized by an increase in demand for an asset, such as commodities, stocks or real estate, which drives up its price. A number of factors, including easy access to credit, low interest rates and investor optimism, frequently combine to create financial bubbles. The asset’s price rises as more individuals invest in it, luring even more capital. Its price eventually falls below a level that can be sustained, which causes a sell-off and a sharp collapse in value. This causes widespread losses for investors and can have a large negative impact on the overall economy.
Tulip Mania (1634 – 1637)
Tulip mania was one of the earliest historical economic bubbles which affected the Netherlands in the early 1600s and was based on tulip bulbs prices that had increased along with their demand reaching previously unheard-of heights before abruptly plummeting. When the tulip bubble burst numerous investors lost their fortunes leaving them with worthless bulbs.
The South Sea Bubble (1720)
The South Sea Bubble was another significant financial bubble that occurred in England during the early 1700s around The South Sea Company which had been given monopoly on trade with South America resulting in its stock increasing quickly leading to buying frenzy among speculators until it burst leading to massive losses among investors resulting in widespread poverty and unemployment throughout England with decreased consumer spending undermining public confidence at large scale damaging English economy significantly at that time period.
Dot Com Bubble (1999 – 2000)
The Dot Com Bubble was one of largest technological bubbles ever seen caused due to overinvestment into internet based companies during late 1990’s resulting into huge crash between 1999 -2000 causing loss of billions of dollars among tech companies as well as individual investors when it bursted bringing entire technological sector down significantly .
Housing Market Bubble (2006 – 2007)
Housing Market Bubble was yet another massive economic crisis seen between 2006 -2007 caused due to rapid increase in housing prices way beyond their true worth leading to quick drop after bursting causing severe damage among banks who were heavily involved into Housing Market investments resulting into huge loss of jobs followed by global recession across many countries worldwide .
Bitcoin Bubble (2017)
Bitcoin created yet another financial bubble back 2017 caused due to crypto currency speculation where its prices rose dramatically only to crash back soon afterwards causing extensive loses among crypto currency traders who invested heavily losing all their money when bitcoin crashed soon afterwards