Recent Economic Bubbles and Possible Implications for Economic Policy

Master's Thesis from the year 2013 in the subject Business economics - Economic Policy grade: 13 University of Bamberg course: Volkswirtschaftslehre Dynamische Wirtschaftspolitik language: English abstract: Repeatedly bubbles occur during times of extended investments in infrastructure such as canals or railroads(Charles P. Kindleberger Manias Panics and Crashes p. 10) or around technological inventions that are made available for the general public such as cars electricity phone - lines and the internet. They go hand in hand with financial inventions financial liberalization and excess leverage. Examples are among many others the Japanese Asset Price bubble of the late 1980ies and early 1990ies the Dot-Com bubble 1997-2000 as well as the recent Financial Crisis 2007-2008. Frequently these bubbles are fueled by the overoptimistic outlook not only of the so-called experts or gurus but also by the extremely positive perception of the general public resulting in a this - time - is - different - feeling new - era - talks or the it -won't happen - to - us - believe(See for example Shiller Kindleberger Reinhart and Rogoff Galbraith). Most of the time these bubbles are self - feeding processes. Business expansion leads to economic growth and greater income. Public spending increases which leads to the need of expanding production. Credit is needed for investment and during times of a boom it is easily made available. Often new financial instruments come into play as well as the deregulation of financial markets to meet the demand for credit. Businesses can expand further which results in ever increasing income and greater expectations about the future. Creditors become less risk averse and grant loans to individuals or firms that would have not met the necessary requirements before. People feel richer since their wealth is re - classified so that their assets and property are all of the sudden worth more for no realistic reason (renovate a ho