Over the past two decades we’ve seen two major bubbles develop: the internet bubble, which burst in March 2000, followed by the real estate and mortgage bubble, which burst in 2007.
Now, we’re entering a stock market bubble in a manner we haven’t seen before, said Jim Puplava, founder of Financial Sense, in a recent podcast, Anatomy of a Bubble.
Bubble Stage One
It all begins with an attention-grabbing idea, Puplava stated.
‘For bubbles to take place, what you usually see throughout history is suddenly the whole community becomes fixated on one object and they go mad in pursuit,’ he said. ‘Millions of people become simultaneously impressed with one illusion, which develops into a delusion.’
We’ve seen this play out throughout history, with the Tulip Mania in the 1600s or, more recently, with internet stocks and real estate.
As the bubble forms, what fuels it is the prospect of imaginary wealth. The public becomes infatuated with the idea that promises fast, easy money, Puplava stated.
Next, the idea becomes widely publicized, and this publicity reinforces the idea, which begins to transform into an illusion. Next, cheap money and credit fuel its rise.
This post was published at FinancialSense on 08/03/2017.
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