Liberto, Daniel. “How Do Asset Bubbles Cause Recessions?” Investopedia, Investopedia, 1 Dec. 2022, https://www.investopedia.com/articles/investing/082515/how-do-asset-bubbles-cause-recessions.asp.
Direct Quote: Asset price bubbles shoulder the blame for some of the most devastating recessions in history. The stock market bubble of the 1920s, the dot-com bubble of the 1990s, and the real estate bubble of the 2000s were asset bubbles followed by sharp economic downturns. Asset bubbles are especially devastating for individuals and businesses who invest too late, meaning shortly before the bubble bursts. In this regard, asset price bubbles bear a similarity to Ponzi or pyramid scams. The inevitable collapse of asset bubbles wipes out the net worth of investors and causes exposed businesses to fail, potentially touching off a cascade of debt deflation and financial panic that can spread to other parts of the economy, resulting in a period of higher unemployment and lower production that characterizes a recession.
Summary/My Interpretation: In recent US history, the three worst recessions were all caused by asset bubbles. Specifically as these bubbles burst they would ripple over to other areas of the economy. Ultimately, this creates a positive feedback loop that causes businesses to fail as well as debt deflation.
How I Plan To Use This in My Project: Overall, I plan to use this article as a way to demonstrate the severity of asset bubbles in the . I want to demonstrate how asset bubbles have been the underlying cause for all major recessions and implicate how if the US doesn’t deflate this bubble it will lead to another depression.
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