USA - What is an economic bubble?
Answer: It is a market condition in which the price of an asset is far in excess of its intrinsic value but which is willingly paid by buyers in anticipation of finding other buyers who will pay an even higher price.
When economic bubbles are said to burst, it means that buyers in a free market no longer are willing to pay more for the bubble asset than its intrinsic worth, which causes those who own the asset to lose the amount by which they previously overpaid. This drop in value usually happens quickly and often takes the form of panic selling.
It is extremely important to understand this basic phenomenon, because it now is a major factor in our everyday lives and, in my opinion, it will cause great havoc around the world in the near future.
What started me to think about this is that my friends at the Success Council, Max Wright and Jarrod Dennis, have just completed an online briefing on the imminent bursting of, not one, but seven global economic bubbles. They are:
► Government debt
► Stock market
► Real Estate
► Sovereign-bonds
► Derivatives
► Student debt
► Unfunded government liabilities
When bubbles burst, a transfer of wealth always takes place – from the victims to the schemers and from the unprepared to the prepared.
If you are wondering what life could be like when these bubbles burst in Europe and the US, just look at what is happening now in the major stock markets of the world and on the streets of Venezuela. When bubbles burst, the economy crashes, and when the economy crashes, life becomes grim, indeed.