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1. Economic bubble – An economic bubble or asset bubble is trade in an asset at a price or price range that strongly deviates from the corresponding assets intrinsic value. It could also be described as a situation in which asset prices appear to be based on implausible or inconsistent views about the future, Asset bubbles date back as far as the 1600s and are now widely regarded as a recurrent feature of modern economic history. Because it is difficult to observe intrinsic values in real-life markets, bubbles are often conclusively identified only in retrospect. Such a drop is known as a crash or a bubble burst, prices in an economic bubble can fluctuate erratically, and become impossible to predict from supply and demand alone. While some economists deny that bubbles occur, the cause of bubbles remains disputed by those who are convinced that asset prices often deviate strongly from intrinsic values. Many explanations have suggested, and research has recently shown that bubbles may appear even without uncertainty, speculation. In such cases, the bubbles may be argued to be rational and these approaches require that the timing of the bubble collapse can only be forecast probabilistically and the bubble process is often modelled using a Markov switching model. Similar explanations suggest that bubbles might ultimately be caused by processes of price coordination, more recent theories of asset bubble formation suggest that these events are sociologically driven. For instance, explanations have focused on emerging social norms and the role that culturally-situated stories or narratives play in these events and this was one of the earliest modern financial crises, other episodes were referred to as manias, as in the Dutch tulip mania. The metaphor indicated that the prices of the stock were inflated and fragile – expanded based on nothing but air, and vulnerable to a sudden burst, as in fact occurred. The impact of economic bubbles is debated within and between schools of thought, they are not generally considered beneficial, but its debated how harmful their formation. Political economist Robert E. Wright argues that bubbles can be identified before the fact with high confidence. A protracted period of low risk premiums can simply prolong the downturn in asset price deflation as was the case of the Great Depression in the 1930s for much of the world and the 1990s for Japan. Not only can the aftermath of a crash devastate the economy of a nation, another important aspect of economic bubbles is their impact on spending habits. Market participants with overvalued assets tend to spend more because they feel richer, many observers quote the housing market in the United Kingdom, Australia, New Zealand, Spain and parts of the United States in recent times, as an example of this effect. In an economy with a bank, the bank may therefore attempt to keep an eye on asset price appreciation. This is usually done by increasing the interest rate, in the 1970s, excess monetary expansion after the U. S. came off the gold standard created massive commodities bubbles. These bubbles only ended when the U. S, central Bank finally reined in the excess money, raising federal funds interest rates to over 14%Economic bubble – A card from the South Sea Bubble
2. Tulip mania – Tulip mania or tulipomania was a period in the Dutch Golden Age during which contract prices for bulbs of the recently introduced tulip reached extraordinarily high levels and then suddenly collapsed. At the peak of tulip mania, in March 1637, some single tulip bulbs sold for more than 10 times the income of a skilled craftsman. The term tulip mania is now often used metaphorically to refer to any large economic bubble when asset prices deviate from intrinsic values, the 1637 event was popularized in 1841 by the book Extraordinary Popular Delusions and the Madness of Crowds, written by British journalist Charles Mackay. According to Mackay, at one point 12 acres of land were offered for a Semper Augustus bulb, Mackay claims that many such investors were ruined by the fall in prices, and Dutch commerce suffered a severe shock. Although Mackays book is a classic, his account is contested, many modern scholars feel that the mania was not as extraordinary as Mackay described and argue that not enough price data are available to prove that a tulip bulb bubble actually occurred. Research is difficult because of the economic data from the 1630s—much of which come from biased. Some modern economists have proposed rational explanations, rather than a speculative mania, for the rise, for example, other flowers, such as the hyacinth, also had high initial prices at the time of their introduction, which immediately fell. The high asset prices may also have driven by expectations of a parliamentary decree that contracts could be voided for a small cost—thus lowering the risk to buyers. Tulip bulbs were soon distributed from Vienna to Augsburg, Antwerp and he planted his collection of tulip bulbs and found they were able to tolerate the harsher conditions of the Low Countries, shortly thereafter the tulip began to grow in popularity. The tulip was different from other flower known to Europe at that time. The appearance of the tulip as a status symbol at this time coincides with the rise of newly independent Hollands trade fortunes. No longer the Spanish Netherlands, its resources could now be channeled into commerce. Amsterdam merchants were at the center of the lucrative East Indies trade, as a result, tulips rapidly became a coveted luxury item, and a profusion of varieties followed. They were classified in groups, the tulips of red, yellow, or white were known as Couleren, the multicolored Rosen, Violetten, and the rarest of all. The multicolor effects of intricate lines and flame-like streaks on the petals were vivid and spectacular, growers named their new varieties with exalted titles. Many early forms were prefixed Admirael, often combined with the growers names, generael was another prefix used for around thirty varieties. Later varieties were given even more extravagant names, derived from Alexander the Great or Scipio, or even Admiral of Admirals, however, naming could be haphazard and varieties highly variable in quality. Most of these varieties have now died out, tulips grow from bulbs, and can be propagated through both seeds and budsTulip mania – A tulip, known as "the Viceroy" (viseroij), displayed in the 1637 Dutch catalog 'Verzameling van een Meenigte Tulipaanen'. Its bulb cost between 3,000 and 4,200 guilders (florins) depending on size (aase). A skilled craftsman at the time earned about 300 guilders a year.
3. South Sea Company – The South Sea Company was a British joint-stock company founded in 1711, created as a public-private partnership to consolidate and reduce the cost of national debt. The company was granted a monopoly to trade with South America. At the time it was created, Britain was involved in the War of the Spanish Succession, there was no realistic prospect that trade would take place and the company never realised any significant profit from its monopoly. The Bubble Act 1720, which forbade the creation of joint-stock companies without royal charter, was promoted by the South Sea company itself before its collapse. In Great Britain, a number of people were ruined by the share collapse. The founders of the scheme engaged in trading, using their advance knowledge of when national debt was to be consolidated to make large profits from purchasing debt in advance. Huge bribes were given to politicians to support the Acts of Parliament necessary for the scheme, Company money was used to deal in its own shares, and selected individuals purchasing shares were given loans backed by those same shares to spend on purchasing more shares. The expectation of vast wealth from trade with South America was used to encourage the public to purchase shares, the only significant trade that did take place was in slaves, but the company failed to manage this profitably. A parliamentary enquiry was held after the crash to discover its causes, a number of politicians were disgraced, and people found to have profited unlawfully from the company had assets confiscated proportionate to their gains. The company was restructured and continued to operate for more than a century after the Bubble, the headquarters were in Threadneedle Street at the centre of the financial district in London, today the Bank of England has headquarters on Threadneedle Street. At the time of events the Bank of England also was a private company dealing in national debt. In August 1710 Robert Harley was appointed Chancellor of the Exchequer in a government of commission, the government at this time had become reliant on the Bank of England. This was a privately owned company, chartered 16 years previously, the government had become dissatisfied with the service it was receiving and Harley was actively seeking new ways to improve the national finances. The committee included Harley himself, the two Auditors of the Imprests, whose task was to investigate government spending, Harleys brother Edward, Harleys first concern was to find £300,000 for the next quarters pay for the British army operating in Europe under Marlborough. This was provided by a consortium of Edward Gibbon, George Caswall. The Bank of England had been operating a state lottery on behalf of the government, but this had not been successful in 1710. This too was performing poorly, so Harley granted authority to sell tickets to John Blunt, a director of the Hollow Sword Blade Company, with sales commencing on 3 March 1711, tickets had completely sold out by the 7th. This was the first truly successful English state lottery, marketing was handled by members of the Sword Blade syndicate, Gibbon selling £200,000 of tickets and earning £4,500 commission, and Blunt selling £993,000South Sea Company – Hogarthian image of the 1720 "South Sea Bubble" from the mid-19th century, by Edward Matthew Ward, Tate Gallery
4. Mississippi Company – The Mississippi Company of 1684 became the Company of the West in 1717, and expanded as the Company of the Indies from 1719. This corporation, which held a monopoly in French colonies in North America. In May 1716, the Banque Générale Privée, which developed the use of money, was set up by John Law. It was a bank, but three quarters of the capital consisted of government bills and government-accepted notes. In August 1717, he bought the Mississippi Company to help the French colony in Louisiana, in the same year Law conceived a joint-stock trading company called the Compagnie dOccident. Law was named the Chief Director of this new company, which was granted a monopoly of the West Indies. The bank became the Banque Royale in 1718, meaning the notes were guaranteed by the king, Louis XIVs long reign and wars had nearly bankrupted the French monarchy. Rather than reduce spending, the Regency of Louis XV of France endorsed the monetary theories of Scottish financier John Law, in 1716, Law was given a charter for the Banque Royale under which the national debt was assigned to the bank in return for extraordinary privileges. The key to the Banque Royale agreement was that the debt would be paid from revenues derived from opening the Mississippi Valley. The Bank was tied to other ventures of Law—the Company of the West, all were known as the Mississippi Company. The Mississippi Company had a monopoly on trade and mineral wealth, Law was given the title Duc dArkansas. Bernard de la Harpe and his party left New Orleans in 1719 to explore the Red River, in 1721, he explored the Arkansas River. At the Yazoo settlements in Mississippi he was joined by Jean Benjamin who became the scientist for the expedition, in 1718, there were only 700 Europeans in Louisiana. The Mississippi Company arranged ships to move 800 more, who landed in Louisiana in 1718, John Law encouraged Germans, particularly Germans of the Alsatian region who had recently fallen under French rule, and the Swiss to emigrate. Prisoners were set free in Paris in September 1719 onwards, under the condition that they marry prostitutes, the newly married couples were chained together and taken to the port of embarkation. In May 1720, after complaints from the Mississippi Company and the concessioners about this class of French immigrants, however, there was a third shipment of prisoners in 1721. Law exaggerated the wealth of Louisiana with a marketing scheme. The scheme promised success for the Mississippi Company by combining investor fervor, the popularity of company shares were such that they sparked a need for more paper bank notes, and when shares generated profits the investors were paid out in paper bank notesMississippi Company – View of the camp of John Law at Biloxi, December 1720
5. Railway Mania – Railway Mania was an instance of speculative frenzy in Britain in the 1840s. It followed a pattern, as the price of railway shares increased. It reached its zenith in 1846, when no fewer than 272 Acts of Parliament were passed, setting up new companies. Britains first recognisably modern inter-city railway, the Liverpool and Manchester, opened in 1830, the late 1830s and early 1840s saw the British economy slow down. By the mid-1840s, the economy was improving vastly and the industries were once again growing. Crucially, there were investors in British business. The Industrial Revolution was creating a new, increasingly affluent middle class, with these limits removed anyone could invest money on a new company and railways were heavily promoted as a foolproof venture. New media such as newspapers and the emergence of the stock market made it easy for companies to promote themselves. Shares could be purchased for a 10% deposit with the company holding the right to call in the remainder at any time. The railways were so heavily promoted as a venture that thousands of investors on modest incomes bought large numbers of shares whilst only being able to afford the deposit. The British government promoted an almost totally laissez-faire system of non-regulation in the railways, anyone could form a company, gain investment and submit a Bill to Parliament. Magnates like George Hudson developed routes in the North and Midlands by amalgamating small railway companies and he was also an MP, but ultimately failed owing to his fraudulent practices of, for example, paying dividends from capital. As with other bubbles, the Railway Mania became a cycle based purely on over-optimistic speculation. Coupled to this, in late 1845 the Bank of England put up interest rates, as banks began to re-invest in bonds, the money began to flow out of railways, under-cutting the boom. The share prices of railways slowed in their rise, then levelled out, as they began to fall, investment stopped virtually overnight, leaving numerous companies without funding and numerous investors with no prospect of any return on their investment. The larger railway companies such as the Great Western Railway and the nascent Midland began to buy up strategic failed lines to expand their network. Many middle class families on modest incomes had sunk their entire savings into new companies during the Mania, the boom-and-bust cycle of early-industrial Britain was still in effect, and the boom that had created the conditions for Railway Mania began to cool and then a decline set in. The number of new railway companies fell away to almost nothing in the late 1840s and early 1850s, unlike some stock market bubbles, there was a net tangible result from all the investment, a vast expansion of the British railway system, though perhaps at an inflated costRailway Mania – A painting of the inaugural journey of the Liverpool and Manchester Railway, by A.B. Clayton
6. Encilhamento – The Encilhamento was an economic bubble that boomed in the late 1880s and early 1890s in Brazil, bursting during the provisional government of Deodoro da Fonseca leading to financial crisis. This policy of economic incentives created unbridled speculation, increased inflation, proposed changes in land legislation for example, was one of the reasons why large landowners and former slaveholders supported the establishment of the republic. In this political environment, economic and social under the pretext of promoting the process of industrialization of the country, big Rentiers, holders of the native big money, who go after the best rate of return for their capital. From that time, highlight the British banks led by Rothschilds, along with the increase in market liquidity, there was the introduction of modern financial mechanisms, enhancing the financial leverage possibilities. The reduction in the issuance of government bonds has also opened space for the expansion of stocks issues. All this, slowly led to an increase in speculation and inflation in general, embracing all economic sectors, from the currencies to real estate, creating minor bubbles into a big one. The fact that Rui Barbosa had been an opponent of such system, accredited him to be appointed by the military as finance secretary. Ironically, when took office, soon after the proclamation of the Republic, a example of such issues occurred not only when a company went to the IPO without any economic fundament to support it, but also whenever it needed more money, just issued new subscriptions. The investor who wouldnt answer to the new offerings, lost the rights to the old ones, on January 20,1891, Rui Barbosa stepped down as finance secretary to head two companies that were created during the Encilhamento and which he had partnership with the Counselor Mayrink. However, due to the powers conferred to monetary authorities. Among these, was Rui Barbosa, who had to go into exile in EuropeEncilhamento – Public finance
7. Roaring Twenties – The Roaring Twenties is a term for Western society and Western culture during the 1920s. In the French Third Republic, the decade was known as the années folles, emphasizing the social, artistic. Jazz music blossomed, the flapper redefined the modern look for British and American women, not everything roared, in the wake of the hyper-emotional patriotism of World War I, Warren G. Harding brought back normalcy to the politics of the United States. This era saw the use of automobiles, telephones, motion pictures, radio. The economies saw rapid growth, accelerated consumer demand, plus significant changes in lifestyle. The media focused on celebrities, especially sports heroes and movie stars, as cities rooted for their teams and filled the new palatial cinemas. In most major states, women won the right to vote. The social and cultural features known as the Roaring Twenties began in leading metropolitan centers, the United States gained dominance in world finance. Thus, when Weimar Republic Germany could no longer afford to pay World War I reparations to the United Kingdom, France and other Allies, the Americans came up with the Dawes Plan. Wall Street invested heavily in Germany, which repaid its reparations to nations that, in turn, by the middle of the decade, prosperity was widespread, with the second half of the decade known, especially in Germany, as the Golden Twenties. The spirit of the Roaring Twenties was marked by a feeling of novelty associated with modernity. Everything seemed to be feasible through modern technology, New technologies, especially automobiles, moving pictures, and radio, brought modernity to a large part of the population. Formal decorative frills were shed in favor of practicality in both life and architecture. At the same time, Jazz and dancing rose in popularity, as such, the period is also often referred to as the Jazz Age. The Wall Street Crash of 1929 ended the era, as the Great Depression brought years of worldwide gloom, the economy of the United States, which had successfully transitioned from a wartime economy to a peacetime economy, boomed and provided loans for a European boom as well. However, some sectors were stagnant, especially farming and coal mining, the United States since the late 19th century was the richest country in the world per capita and in terms of total GDP. Its industry was based on production, and its society acculturated into consumerism. European economies, by contrast, had a more difficult postwar readjustment, at first, the end of wartime production caused a brief but deep recession, the post–World War I recession of 1919–20Roaring Twenties – Climax of the new architectural style: the Chrysler Building in New York City was built after the European wave of Art Deco reached the United States.
8. 1997 Asian financial crisis – At the time, Thailand had acquired a burden of foreign debt that made the country effectively bankrupt even before the collapse of its currency. As the crisis spread, most of Southeast Asia and Japan saw slumping currencies, devalued stock markets and other asset prices, Indonesia, South Korea and Thailand were the countries most affected by the crisis. Hong Kong, Laos, Malaysia and the Philippines were also hurt by the slump, brunei, China, Singapore, Taiwan and Vietnam were less affected, although all suffered from a loss of demand and confidence throughout the region. Foreign debt-to-GDP ratios rose from 100% to 167% in the four large Association of Southeast Asian Nations economies in 1993–96, in South Korea, the ratios rose from 13% to 21% and then as high as 40%, while the other northern newly industrialized countries fared much better. Only in Thailand and South Korea did debt service-to-exports ratios rise, the efforts to stem a global economic crisis did little to stabilize the domestic situation in Indonesia, however. After 30 years in power, President Suharto was forced to step down on 21 May 1998 in the wake of rioting that followed sharp price increases caused by a drastic devaluation of the rupiah. The effects of the crisis lingered through 1998, in 1998 the Philippines growth dropped to virtually zero. By 1999, however, analysts saw signs that the economies of Asia were beginning to recover, after the 1997 Asian Financial Crisis, economies in the region are working toward financial stability on financial supervision. Until 1999, Asia attracted almost half of the capital inflow into developing countries. The economies of Southeast Asia in particular maintained high interest rates attractive to investors looking for a high rate of return. As a result, the regions received a large inflow of money. At the same time, the economies of Thailand, Malaysia, Indonesia, Singapore. This achievement was widely acclaimed by financial institutions including IMF and World Bank, the causes of the debacle are many and disputed. Thailands economy developed into an economic bubble fueled by hot money, more and more was required as the size of the bubble grew. The same type of situation happened in Malaysia, and Indonesia, the short-term capital flow was expensive and often highly conditioned for quick profit. Development money went in an uncontrolled manner to certain people only, not particularly the best suited or most efficient. As the U. S. economy recovered from a recession in the early 1990s, the U. S. Federal Reserve Bank under Alan Greenspan began to raise U. S. interest rates to head off inflation. S. dollar. For the Southeast Asian nations which had pegged to the U. S. dollar1997 Asian financial crisis – Fall of Suharto: President Suharto resigns, 21 May 1998.
9. Dot-com bubble – The period was marked by the founding of several new Internet-based companies commonly referred to as dot-coms. Companies could cause their stock prices to increase by adding an e- prefix to their name or a. com suffix. By the end of the 1990s, the NASDAQ hit a P/E ratio of 200, the collapse of the bubble took place during 1999–2001. Some companies, such as pets. com and Webvan, failed completely, others – such as Cisco, whose stock declined by 86% – lost a large portion of their market capitalization but remained stable and profitable. Some, such as eBay. com, later recovered and even surpassed their dot-com-bubble peaks, the stock of Amazon. com came to exceed $700 per share, for example, after having gone from $107 to $7 in the crash. The low interest rates of 1998–99 helped increase the start-up capital amounts, a canonical dot-com companys business model relied on harnessing network effects by operating at a sustained net loss and building market share. These companies offered their services or end product for free with the expectation that they could build enough brand awareness to charge profitable rates for their services later, the motto get big fast reflected this strategy. This occurred in industrialized nations due to the digital divide in the late 1990s. The absence of infrastructure and a lack of understanding were two obstacles that previously obstructed mass connectivity. For these reasons, individuals had limited capabilities in what they could do, increased means of connectivity to the Internet than previously available allowed the use of ICT to progress from a luxury good to a necessity good. As connectivity grew, so did the potential for venture capitalists to take advantage of the growing field, the functionalism, or impacts of technologies driven from the cost effectiveness of new Internet websites ultimately influenced the demand growth during this time. A bubble occurs when speculators note the fast increase in value and decide to buy in anticipation of further rises, typically, during a bubble, many companies thus become grossly overvalued. When the bubble bursts, the prices fall dramatically. The prices of many non-technology stocks increased in tandem and were pushed up to valuations uncorrelated to fundamentals. Andrew Smith argued that the financial industrys handling of initial public offerings tended to benefit the banks, in contrast, the financiers and other initial investors were typically entitled to sell at the peak price, and so could immediately profit from short-term price rises. Smith argues that the profitability of the IPOs to Wall Street was a significant factor in the course of events of the bubble. He writes, But did the kids dupe the establishment by drawing them into companies, or did the establishment dupe the kids by introducing them to Mammon. In spite of this, however, a few company founders made vast fortunes when their companies were out at an early stage in the dot-com stock market bubbleDot-com bubble – The NASDAQ Composite index spiked in the late 90s and then fell sharply as a result of the dot-com bubble.
10. Uranium bubble of 2007 – The uranium bubble of 2007 was a period of nearly exponential growth in the price of natural uranium, starting in 2005 and peaking at roughly $300/kg in mid-2007. This coincided with significant rises of stock price of uranium mining, after mid-2007, the price began to fall again and at end 2010 was relatively stable at around $100/kg. The upward trend for the prices of uranium was already apparent since 2003 and this prompted increases in mining activity. A possible direct cause for the bubble is the flooding of the Cigar Lake Mine, Saskatchewan and this created uncertainty about short-term future of the uranium supply. Other factors are speculation triggered by growing expectations around India and Chinas nuclear programs, however, the sharp fall in prices after mid-2007 caused a lot of new companies focused on exploration and mining to lose their viability and go out of business. Due to increased prospecting, known and inferred reserves of uranium have increased by 15% between 2005 and 2007, 2000s commodities boom Uranium Participation CorporationUranium bubble of 2007 – Monthly uranium spot price in USD per pound from 1980 to 2011. The 2007 price peak is clearly visible.
11. Real estate bubble – A real estate bubble or property bubble is a type of economic bubble that occurs periodically in local or global real estate markets, typically following a land boom. A land boom is the increase in the market price of real property such as housing until they reach unsustainable levels. The financial crisis of 2007–08 was related to the bursting of real estate bubbles which had begun during the 2000s around the world, Bubbles in housing markets are more critical than stock market bubbles. Historically, equity price busts occur on average every 13 years, lasts for 2.5 years, Housing price busts are less frequent, but last nearly twice as long and lead to output losses that are twice as large. A recent laboratory experimental study also shows that, compared to financial markets, real estate markets involve longer boom, as with all types of economic bubbles, disagreement exists over whether or not a real estate bubble can be identified or predicted, then perhaps prevented. Speculative bubbles are persistent, systematic and increasing deviations of actual prices from their fundamental values, Bubbles can often be hard to identify, even after the fact, due to difficulty in accurately estimating intrinsic values. In real estate, fundamentals can be estimated from rental yields or based on a regression of actual prices on a set of demand and/or supply variables. Some argue further that governments and central banks can and should take action to prevent bubbles from forming, within mainstream economics, economic bubbles, and in particular real estate bubbles, are not considered major concerns. Within some schools of economics, by contrast, real estate bubbles are considered of critical importance. The pre-dominating economic perspective is that economic bubbles result in a temporary boost in wealth, when prices increase, there is a positive wealth effect, and when they decline, there is a negative wealth effect. These effects can be smoothed by counter-cyclical monetary and fiscal policies, the ultimate effect on owners who bought before the bubble formed and did not sell is zero. Those who bought low and sold high profited, whereas those who bought high. This redistribution of wealth is of little macroeconomic significance and these are then argued to cause financial and hence economic crises. This is first argued empirically – numerous real estate bubbles have been followed by economic slumps, when the bubble bursts, the value of the property decreases but not the level of debt. The burden of repaying or defaulting on the loan depresses aggregate demand, it is argued, the crash of the Japanese asset price bubble from 1990 on has been very damaging to the Japanese economy. The crash in 2005 affected Shanghai, Chinas largest city, in comparison to the stock market bubbles, real estate bubbles take longer to deflate, prices decline slower because the real estate market is less liquid. Therefore, this focuses on housing bubbles and mentions other sectors only when their situation differs. Then U. S. Federal Reserve Chairman Alan Greenspan said in mid-2005 that at a minimum, the Economist magazine, writing at the same time, went further, saying the worldwide rise in house prices is the biggest bubble in historyReal estate bubble – US house price trend (1998–2008) as measured by the Case-Shiller index
12. Australian property bubble – The Australian property bubble is the ongoing debate in Australia as to whether or not the Australian property market is significantly overpriced, and due for a significant downturn. The debate has been ongoing since at least 2001, with Australian property prices continuing to rise, some commentators, including one Treasury official, claim the Australian property market is in a significant bubble. The historically low interest rates, rising cost of living, negative gearing, capital gains tax concessions, high rents, however, due to legislative changes that allow an excess of developments, there is currently an oversupply of housing. Various industry professionals have argued that it is not a bubble, some commentators have blamed rising property prices on state governments restrictions on land supply, driving up the cost of land, lots, and thus homes. Some have also blamed planning rules as acting to restrain supply of housing, since 2012 prices have once again risen strongly relative to incomes and rents. In June 2016, the Organisation for Economic Co-operation and Development reported that Australias housing boom could end in dramatic, the Australian property market has seen steady increases of around 3% per annum since the 1970s. Since the 1990s, however, prices have risen by around 6% per annum, since then, several comparable countries have experienced property crashes. All capital cities have seen increases in property prices since about 1998. Sydney and Melbourne have seen the largest price increases, with prices rising 105% and 93. 5% respectively since 2009. These massive increases in house prices coincide with low wage growth, record low interest rates. This clearly shows unsustainable growth in property, driven by ever higher debt levels fuelled by the RBAs then chief, some factors that may have contributed to the increase in property prices include, greater availability of credit due to financial deregulation. Low interest rates since 2008, increasing borrowing capacity to borrow due to lower repayments, limited government release of new land. The average floor area of new houses has increased by up to 53. 8% in the 18 years from 1984-85 to 2002-03, a tax system that favours investors and existing home owners, with policies such as negative gearing and capital gain tax discounts. Government restrictions on the use of land preventing higher density land use, Government restrictions on greenfield development designed to encourage urban densification. 2008 foreign investment rule changes for temporary visa holders, introduction by local councils of upfront infrastructure levies in the early 2000s. Beginning in the 1980s, Australian states started progressively implementing more rigid planning laws that regulated the use of land, Planning laws often concentrated, after the 1990s, on restricting greenfield development in favour of urban densification, or infill development. Land rationing is a system of banning development in all but designated areas, the Reserve Bank of Australia has noted that there are a number of areas in which the taxation treatment in Australia is more favourable to investors than is the case in other countries. The influence of interest rates and banking policy on property prices has been noted, the financial deregulation has led to greater availability of credit and a variety of financial products and optionsAustralian property bubble – Chart 1: House Price Index and CPI. Source ABS
13. Indian property bubble – The Indian property bubble refers to the concern expressed by some Indian economists that housing market in some major Indian cities may be in a bubble. The real estate sector is thought to be collapsing due to increasing costs of financing, Real estate projects in India take a long time to complete due to a complicated and corrupt regulatory mechanism. Several of the Indias publicly traded real estate firms are in debt, the inventory of unsold real estate assets is growing and it is expected the market will undergo price corrections. According to Mumbai-based market research agency, Liases Foras, 30% of the transaction in the estate sector is done with black money. Demonetisation of 500 and 1000 rupee notes by Prime minister Modi proved to be the last straw that broke the black money camels back, experts expect new property prices to fall upto 50% in next three months in Tier 1 cities. The paper said that the prices in India were correlated more with interest rates and credit growth. He also said the prices should be falling faster, but due to the lack of transparency in the sector, in March 2005, the Government of India permitted 100% foreign direct investment in construction and development projects. Before that only non-resident Indians and persons of Indian origin were allowed to investment in the estate sector. Foreign investors could only invest through wholly owned subsidiaries and partnerships with Indian firms, however, foreign investors were not allowed to hold land for speculative purposes. In July 2013, the Reserve Bank of India increased the rate by 200 basis points to 10. 25%. This increased the cost of funds for the banking sector. In July 2013, the State Bank of India took ownership of a project called Teen Kanya in Kolkata after the builder, Bengal Shelter. About 400 people, who had paid up to 90% of the prices, in August 2013, Orbit Corporation, a Mumbai-based real estate firm, defaulted on loans worths ₹96 crore taken from LIC Housing Finance. Orbit Corporation had taken a loan of ₹3.25 billion from LIC Housing Fiance, on 14 August 2013, the RBI put various restrictions on the amount of funds individuals and companies can invest abroad, in a bid to protect the value of the Indian rupee. Among the restrictions was a ban on the purchase of real estate abroad. In September 2013, it was reported that about 650 million sq. feet of assets or about 6,00,000 housing units remained unsold at the end of June 2013, some builders were seen dropping prices and offering other incentives to buyers. In October 2013, the RBI issued an adivisory to buyers and it asked banks to release sactioned individual housing loan amounts in phases linked to construction stages, instead of releasing the funds as a lump sum. The unlinked loans used to act as cheap credit for builders, buldiers used to encourage buyers to put 20% of the price of the housing unit as downpayment and apply for the rest 80% as a loanIndian property bubble – A major office complex in Gurgaon
14. Irish property bubble – The Irish property bubble was the collapsed overshooting part of a long-term price increase of Irish real estate from the late 1990s to 2007 in a period known as the Celtic Tiger. By the second quarter of 2010, house prices in Ireland had fallen by 35% compared with the quarter of 2007. The fall in domestic and commercial property prices contributed to the Irish banking crisis, House prices in Dublin were at one point down 56% from peak and apartment prices down over 62%. For a time, house prices returned to 20th century levels, as of December 2012, more than 28% of Irish mortgages are in arrears or have been restructured and commercial and buy-to-let arrears are at 18%. Since early 2013 property prices in the country have begun to recover with property prices in Dublin up over 20% from their nadir, from 1991 to 2001, Irelands real gross domestic product growth averaged above 7% and there was a large expansion in the workforce. From 1990 to 2000, the Irish gross national product per capita rose 58%, the pace of expansion in lending to households from 2003–2007 was among the highest in the Eurozone, with German banks having US$208.3 billion in total exposure to Ireland. These factors led to house prices increasing by 17% between May 2000 to May 2001 alone, House prices went on to more than double between 2000 and 2006, with tax incentives being a key driver of this price rise. The Fianna Fáil-Progressive Democrat government received criticism for these policies. Interest rates set by the European Central Bank are only guided by low inflation targets in the Eurozone, the pace of credit expansion to finance the Irish housing bubble accelerated sharply in the years preceding the crisis. The relaxed and weak Irish regulatory supervision of the sector made the financing of excessively increasing real estate prices in the Irish market possible. The Financial Regulator and the Central Bank were responsible for the inadequacy of the stability system at the time of crisis. The Central Bank admitted in November 2005, that estimates of overvaluation of 20% to 60% in the Irish residential property market existed. Senior Allied Irish Bank officials expressed concerns in 2006 that Central Bank stress tests were not stressful enough — two years before the collapse of the Irish banking system. The CBOI continually ignored warnings from the Economic and Social Research Institute about the scale of bank loans to property speculators and developers. Corrective regulatory action was delayed and timid to the property price. Management abuses, which the CBOI did not restrain, were revealed at Anglo Irish Bank. This has been confirmed by the stress testing exercises we have carried out with the banks, the next Annual Report had virtually nothing to say about how and why the Irish banking system was brought to the brink of collapse. Despite having four directors on the board of the Financial Regulator, the official did admit that the Central Bank had failed to give sufficient warning about reckless lending to property developersIrish property bubble – An advertisement for 100% mortgages seen outside Dublin (17 July 2007).
15. Spanish property bubble – The Spanish property bubble is the collapsed overshooting part of a long-term price increase of Spanish real estate prices. This long-term price increase has happened in stages from 1985 up to 2008. Coinciding with the crisis of 2007–08, prices began to fall. According to Alcidi and Gros note, “If construction were to continue at the relatively high rate of today. The desire to own ones own home was encouraged by governments in the 1960s and 70s, in addition, tax regulation encourages ownership, 15% of mortgage payments are deductible from personal income taxes. Further, the oldest apartments are controlled by non-inflation-adjusted rent-controls and eviction is slow, banks offered 40-year and, more recently, 50-year mortgages. As feared, when the speculative bubble popped, Spain became one of the worst affected countries, according to eurostat, over the June 2007-June 2008 period, Spain has been the European country with the sharpest plunge in construction rates. In 2008, new constructions came virtually to a halt, the national average price as of late 2008 was 2,095 euros/m2 Actual sales over the July 2007-June 2008 period were down an average 25. 3%. Some regions have been more affected than others, unlike much of the United States, Spain does not recognize mortgage loans as nonrecourse debt. Since property prices dropped enough for most foreclosures to only account for 60% of the loan, those evicted have large debts for property they no longer own. According to the reports of the Bank of Spain, between 1976 and 2003, the price of housing in Spain has doubled in real terms, which means, in nominal terms, a multiplication by 16. In the period of 1997—2006, the price of housing in Spain had risen about 150% in nominal terms and it is stated that from 2000 to 2009,5 million new housing units had been added to the existing stock of 20 million. In 2008, the real estate started to drop fast. In the period of 2007-2013, Spanish house prices had fallen by 37%, each year almost a million homes were built in Spain, more than in Germany, France, and England altogether. One of the effects of this situation is the growth of household debt. Since usually the purchase of housing, whether to live or to invest, is made from mortgage loans, the indebtedness of the Spanish tripled in less than ten years. In 1986, debt represented 34% of disposable income, in 1997 it rose to 52%, in 2006, a quarter of the population was indebted with maturities of more than 15 years. From 1990 to 2004, the length of mortgages increased from 12 to 25 yearsSpanish property bubble – The housing bubble was fed by the credit to private sector (individuals and developers), which led to a significant increase in private debt (blue) stopped with the international financial crisis, ending the speculative process.
16. United States housing bubble – The United States housing bubble was a real estate bubble affecting over half of the U. S. states. Housing prices peaked in early 2006, started to decline in 2006 and 2007, on December 30,2008, the Case-Shiller home price index reported its largest price drop in its history. In October 2007, the U. S. Secretary of the Treasury called the bursting housing bubble the most significant risk to our economy, Land prices contributed much more to the price increases than did structures. This can be seen in the building cost index in Fig.1, an estimate of land value for a house can be derived by subtracting the replacement value of the structure, adjusted for depreciation, from the home price. Using this methodology, Davis and Palumbo calculated land values for 46 U. S. metro areas, Housing bubbles may occur in local or global real estate markets. This may be followed by decreases in home prices that result in many owners finding themselves in a position of negative equity—a mortgage debt higher than the value of the property, the underlying causes of the housing bubble are complex. Factors include tax policy, historically low interest rates, tax lending standards, failure of regulators to intervene and this bubble may be related to the stock market or dot-com bubble of the 1990s. This bubble roughly coincides with the real estate bubbles of the United Kingdom, Hong Kong, Spain, Poland, Hungary and South Korea. While bubbles may be identifiable in progress, bubbles can be measured only in hindsight after a market correction. In 2001, Alan Greenspan dropped interest rates to a low 1% in order to jump the economy after the. com bubble and it was then bankers and other Wall Street firms started borrowing money due to its inexpensiveness. The mortgage and credit crisis was caused by the inability of a number of home owners to pay their mortgages as their low introductory-rate mortgages reverted to regular interest rates. Greenspan warned of large double digit declines in home values larger than most people expect, the impact of booming home valuations on the U. S. Prior to that, Robert Prechter wrote about it extensively as did Professor Shiller in his publication of Irrational Exuberance in the year 2000. Hunn wrote, e can profit from the collapse of the credit bubble, however, real estate has not yet joined in a decline of prices fed by selling. Unless you have a specific reason to believe that real estate will outperform all other investments for several years. Many contested any suggestion that there could be a bubble, particularly at its peak from 2004 to 2006. Claims that there was no warning of the crisis were further repudiated in an August 2008 article in The New York Times, in his memo, Mr. Andrukonis wrote that these loans would likely pose an enormous financial and reputational risk to the company and the country. The article revealed that more than two-dozen high-ranking executives said that Mr. Syron had simply decided to ignore the warnings, other cautions came as early as 2001, when the late Federal Reserve governor Edward Gramlich warned of the risks posed by subprime mortgagesUnited States housing bubble – Bank run on the U.K.'s Northern Rock Bank by customers queuing to withdraw savings in a panic related to the U.S. subprime crisis.
17. Causes of the United States housing bubble – In July 1978, Section 121 allowed for a $100,000 one-time exclusion in capital gains for sellers 55 years or older at the time of sale. In 1981, the Section 121 exclusion was increased from $100,000 to $125,000, the Tax Reform Act of 1986 eliminated the tax deduction for interest paid on credit cards. As mortgage interest remained deductible, this encouraged the use of equity through refinancing, second mortgages. This made housing the only investment which escaped capital gains and these tax laws encouraged people to buy expensive, fully mortgaged homes, as well as invest in second homes and investment properties, as opposed to investing in stocks, bonds, or other assets. Historically, the sector was heavily regulated by the Glass–Steagall Act which separated commercial. It also set limits on Banks interest rates and loans. Starting in the 1980s, considerable deregulation took place in banking, Banks were deregulated through, The Depository Institutions Deregulation and Monetary Control Act of 1980. Germain Depository Institutions Act of 1982, Federal Home Loan Bank Board allowed federal S&Ls to originate Adjustable-rate mortgages in 1979 and in 1981 the Comptroller of the Currency extended the privilege to national banks. Several authors single out the banking deregulation by the Gramm–Leach–Bliley Act as significant, nobel Prize-winning economist Joseph Stiglitz has also argued that GLB helped to create the crisis. An article in The Nation has made the same argument, economists Robert Ekelund and Mark Thornton have also criticized the Act as contributing to the crisis. Critics have also noted defacto deregulation through a shift in mortgage securitization market share from more highly regulated Government Sponsored Enterprises to less regulated investment banks, however, many economists, analysts and politicians reject the criticisms of the GLB legislation. These were applied through the Community Reinvestment Act and government sponsored entities Fannie Mae, journalist Daniel Indiviglio argues the two GSEs played a major role, while not denying the importance of Wall Street and others in the private sector in creating the collapse. The Housing and Community Development Act of 1992 established an affordable housing loan purchase mandate for Fannie Mae and Freddie Mac, initially, the 1992 legislation required that 30 percent or more of Fannie’s and Freddie’s loan purchases be related to affordable housing. However, HUD was given the power to set future requirements, in 1995 HUD mandated that 40 percent of Fannie and Freddie’s loan purchases would have to support affordable housing. In 1996, HUD directed Freddie and Fannie to provide at least 42% of their financing to borrowers with income below the median in their area. This target was increased to 50% in 2000 and 52% in 2005, under the Bush Administration HUD continued to pressure Fannie and Freddie to increase affordable housing purchases – to as high as 56 percent by the year 2008. To satisfy these mandates, Fannie and Freddie eventually announced low-income, critics argue that, to meet these commitments, Fannie and Freddie promoted a loosening of lending standards - industry-wide. He also charged the Federal Reserve with ignoring the impact of the CRACauses of the United States housing bubble – Inflation-adjusted housing prices in Japan (1980–2005) compared to home price appreciation the United States, Britain, and Australia (1995–2005).
18. Carbon bubble – Currently the price of fossil fuels companies shares is calculated under the assumption that all fossil fuel reserves will be consumed. An estimate made by Kepler Chevreux puts the loss in value of the fossil fuel companies due to the impact of the renewables industry at US$28 trillion over the next two decades-long. A more recent analysis made by Citi puts that figure at $100 trillion, According to the UKs Committee on Climate Change, overvaluing companies that produce fossil fuels and greenhouse gases poses a serious threat to the economy. The committee warned the British government and Bank of England of the risks of the bubble in 2014. That same month, the Prudential Regulation Authority of the Bank of England issued a report discussing the risks, in his speech announcing his denial of the proposal to build the Keystone XL oil pipeline, U. S. President Barack Obama gave as one reason for the decision. Ultimately, if we’re going to prevent large parts of this Earth from becoming not only inhospitable but uninhabitable in our lifetimes, we’re going to have to keep some fossil fuels in the ground. Author Bill McKibben has estimated that to sustain life in the world. The Stern report in 2006 stated that the benefits of strong, early action to decrease the use of oil, coal, the term Carbon bubble arose in the early 21st century from the increasing awareness of the impact of fossil fuel combustion on global temperatures. The term appeared in a media article by Bill McKibben. It was further popularized by the Carbon Tracker Initiative, which published key reports in July 2011 and these were followed later in 2013 by a report from the Demos think tank. A planned and orderly transition away from dependence on fossil fuels could prevent a disruptive bursting of the carbon bubble, a number of developments are supporting such a transition. Hence continued exploration or development of reserves would be extraneous to needs, to meet the 2 °C target, strong measures would be needed to suppress demand, such as a substantial carbon tax leaving a lower price for the producers from a smaller market. The impact on producers would vary depending on the cost of production in their areas of operation. The report notes that standard economic estimates of the costs of climate change are wildly sensitive both to assumptions about the science, and to judgments about the value of human life. They are also likely to be biased towards underestimation of risk. Awareness in the financial industry By 2013, there was significant awareness in the industry of the risks associated with exposure to companies involved in extraction of fossil fuels. These indices are intended to make it easier for investors to steer their investments away from such companies and it has been proposed that companies be required by law to report on their greenhouse gas emissions and assess the risk this could pose to their future financial performance. According to Christiana Figueres, UNFCCC, companies have a duty to shareholders to move to a low-carbon economy, divestment campaigning The ongoing fossil fuels divestment campaign in universities, churches and pension funds contributes to divestiture from fossil fuel companiesCarbon bubble – Carbon Bubble according to data by the Carbon Tracker Initiative 2013.
19. Higher education bubble – The higher education bubble in the United States is a claim that excessive investment in higher education could have negative repercussions in the broader economy. Also, employers have responded to the oversupply of graduates by raising the academic requirements of many occupations higher than is necessary to perform the work. The claim has generally used to justify cuts to public higher education spending, tax cuts, or a shift of government spending towards the criminal justice system. The benefits of higher education continue to exceed the costs by a margin for most students. Even among those who are employed in jobs that do not ostensibly require their level of education, education increases earnings, Labor economists, statisticians and other social scientists generally struggle to explain apparent under-investment in higher education, given the large financial returns. Moreover, student loans are profitable for the government, benjamin Ginsberg explains the connection between the increased ability to pay tuition and the increase in services provided in his book The Fall of the Faculty. According to Ginsberg, there have been new sorts of demands for services that require more managers per student or faculty member than was true in the past. As discussed below, the higher education bubble is controversial and has been rejected by some economists, indeed, many Americans still believe in the value of a college education, although they are unsure about its quality and affordability. The data also suggests that, notwithstanding an increase in 2008–09. Those with college degrees are less likely than those without to be unemployed. What is also interesting is that the cost of tuition over last 4 years from 2009–12 has been increasing steadily over the years while wages have remained stagnant. In 1987, U. S. Secretary of Education William Bennett first suggested that the availability of loans may in fact be fueling an increase in tuition prices and this Bennett hypothesis claims that readily available loans allow schools to increase tuition prices without regard to demand elasticity. College rankings are partially driven by spending levels, and higher prices are correlated with increased public perceptions of prestige. Over the past thirty years, demand has increased as institutions improved facilities, additionally, schools tend to enroll fewer students as they improve student offerings and increase prices. This suggests that it is in schools best interest to increase tuition prices as much as possible, a 2011 article in The Huffington Post, related concern that new college graduates hiring rates are up by 10 percent and that attaining a secondary level education eventually pays off. It is also suggested that high school graduates are three times more likely to live in poverty than students with higher education degrees, a recent study from the Labor Department suggests that attaining a bachelors degree represents a significant advantage in the job market. However, the article claims that those who only have a high school education – unemployment is slightly higher at a rate of 9.3 percent. The proponents of the article claim that companies are most likely to hire an applicant straight from college rather than one who has been unemployedHigher education bubble – Study comparing college revenue per student by tuition and state funding in 2008 dollars.
20. AI winter – In the history of artificial intelligence, an AI winter is a period of reduced funding and interest in artificial intelligence research. The term was coined by analogy to the idea of a nuclear winter, the field has experienced several hype cycles, followed by disappointment and criticism, followed by funding cuts, followed by renewed interest years or decades later. The term first appeared in 1984 as the topic of a debate at the annual meeting of AAAI. It is a reaction that begins with pessimism in the AI community, followed by pessimism in the press, followed by a severe cutback in funding. Three years later, the billion-dollar AI industry began to collapse, hypes are common in many emerging technologies, such as the railway mania or the dot-com bubble. The AI winter is primarily a collapse in the perception of AI by government bureaucrats, despite the rise and fall of AIs reputation, it has continued to develop new and successful technologies. AI researcher Rodney Brooks would complain in 2002 that theres this stupid myth out there that AI has failed, in 2005, Ray Kurzweil agreed, Many observers still think that the AI winter was the end of the story and that nothing since has come of the AI field. Yet today many thousands of AI applications are deeply embedded in the infrastructure of every industry, as Ray Kurzweil writes, the AI winter is long since over. During the Cold War, the US government was interested in the automatic, instant translation of Russian documents. The government aggressively supported efforts at machine translation starting in 1954, at the outset, the researchers were optimistic. Noam Chomskys new work in grammar was streamlining the translation process, however, researchers had underestimated the profound difficulty of word-sense disambiguation. In order to translate a sentence, a machine needed to have some idea what the sentence was about, an anecdotal example was the spirit is willing but the flesh is weak. Translated back and forth with Russian, it became the vodka is good, similarly, out of sight, out of mind became blind idiot. Later researchers would call this the commonsense knowledge problem, by 1964, the National Research Council had become concerned about the lack of progress and formed the Automatic Language Processing Advisory Committee to look into the problem. They concluded, in a famous 1966 report, that translation was more expensive, less accurate. After spending some 20 million dollars, the NRC ended all support, careers were destroyed and research ended. Machine translation is still a research problem in the 21st century. See also, Perceptrons and Frank Rosenblatt Some of the earliest work in AI used networks or circuits of connected units to simulate intelligent behaviorAI winter – A perceptron
21. Stock market bubble – A stock market bubble is a type of economic bubble taking place in stock markets when market participants drive stock prices above their value in relation to some system of stock valuation. Behavioral finance theory attributes stock market bubbles to cognitive biases that lead to groupthink, bubbles occur not only in real-world markets, with their inherent uncertainty and noise, but also in highly predictable experimental markets. Other theoretical explanations of stock market bubbles have suggested that they are rational, intrinsic, two famous early stock market bubbles were the Mississippi Scheme in France and the South Sea bubble in England. Both bubbles came to an end in 1720, bankrupting thousands of unfortunate investors. Those stories, and many others, are recounted in Charles Mackays 1841 popular account, Extraordinary Popular Delusions, the 1920s saw the widespread introduction of an amazing range of technological innovations including radio, automobiles, aviation and the deployment of electrical power grids. The 1990s was the decade when Internet and e-commerce technologies emerged, stock market bubbles frequently produce hot markets in initial public offerings, since investment bankers and their clients see opportunities to float new stock issues at inflated prices. These hot IPO markets misallocate investment funds to areas dictated by speculative trends, emotional and cognitive biases seem to be the causes of bubbles, but often, when the phenomenon appears, pundits try to find a rationale, so as not to be against the crowd. Thus, sometimes, people will dismiss concerns about overpriced markets by citing a new economy where the old stock valuation rules may no longer apply and this type of thinking helps to further propagate the bubble whereby everyone is investing with the intent of finding a greater fool. Still, some cite the wisdom of crowds and say that price movements really do reflect rational expectations of fundamental returns. Large traders become powerful enough to rock the boat, generating stock market bubbles, the bubble in closed-end country funds in the late 1980s is instructive here, as are the bubbles that occur in experimental asset markets. According to the hypothesis, this doesnt happen, and so any data is wrong. For closed-end country funds, observers can compare the prices to the net asset value per share. For experimental asset markets, observers can compare the prices to the expected returns from holding the stock. In both instances, closed-end country funds and experimental markets, stock prices clearly diverge from fundamental values. Nobel laureate Dr. Vernon Smith has illustrated the closed-end country fund phenomenon with a chart showing prices, at its peak, the Spain Fund traded near $35, nearly triple its Net Asset Value of about $12 per share. It only took a few months for the premiums in closed-end country funds to back to the more typical discounts at which closed-end funds trade. Those who had them at premiums had run out of greater fools. For a while, though, the supply of greater fools had been outstanding, a rising price on any share will attract the attention of investorsStock market bubble