KAL, The Economist’s resident cartoonist and animator, explains the dangerous history of bubbles.
KAL draws: Bubbles: Fit to burst
An economic bubble (sometimes referred to as a speculative bubble, a market bubble, a price bubble, a financial bubble, a speculative mania or a balloon) is “trade in high volumes at prices that are considerably at variance with intrinsic values. It could also be described as a a situation in which asset prices appear to be based on implausible or inconsistent views about the future
Bubbles are common in other asset markets such as for stocks and bonds.
The bursting of a bubble – such as a collapse in property prices – can have important demand-side effects on wealth, confidence and aggregate demand.