Investors bought it as a hedge against the global financial crisis, not for its value in producing jewelry or dental fillings. Many thought the global economy would recover quickly. When it didn't, gold speculation continued, and prices rose for three more years. Yield rates followed suit; on June 1, , yields on year Treasury notes closed at 1.
That same day, investors sold off stocks amidst fears of high unemployment and the worsening of the eurozone debt crisis, driving the Dow down points. They turned to safe-haven Treasury notes instead.
However, by , interest rates started to rise as the Fed hinted it would begin winding down its purchases of treasury notes in September. The Federal Reserve postponed its intended course of action when the government shut down in October. Therefore, the yield on the year Treasury remained at around 2.
The stock market took off in The Dow Jones Industrial Average experienced a gain of Rising corporate profits, a product of cost-cutting and productivity increases, drove up stock prices. However, companies stockpiled the earnings rather than reinvested them. In May, the Federal Reserve hinted that it would taper quantitative easing, which put a brief damper on the market.
However, more pronounced economic weakening occurred in early ; stocks fell sharply in January. The high value of the U. Although the stock market rallied in February, GDP growth for the first quarter stood at an annualized rate of In late October , when the Federal Reserve announced that quantitative easing would end, Forex traders stampeded into the dollar, causing it to soar. At the same time, the European Central Bank stated it would start quantitative easing, so U.
GDP improved to an annualized rate of 4. All this reflected American economic strength combined with weakness in the European Union and emerging markets, especially China. However, the strong dollar hurt exports, which reduced U. GDP in and It also aggravated a drop in oil prices, which fell to a six-year low in the third quarter of Bitcoin is a digital currency—a computer-based form of monetary exchange.
No government or central bank will control, manufacture, or regulate it. In September , the U. Commodity Futures Trading Commission designated Bitcoin as a commodity.
Its stratospheric rise in was in part because Japan's Financial Services Agency recognized it as a legitimate payment method in April. Your Practice. Popular Courses. Investing Markets. Table of Contents Expand. What Is a Bubble? Types of Asset Bubbles. Five Stages of a Bubble. Example of a Stock Bubble: eToys. Asset Bubble FAQs. The Bottom Line. Financial bubbles, aka asset bubbles or economic bubbles, fit into four basic categories: stock market bubbles, market bubbles, credit bubbles, and commodity bubbles.
Bubbles are deceptive and unpredictable, but understanding the five stages they characteristically go through can help investors prepare for them. The five steps in the lifecycle of a bubble are displacement, boom, euphoria, profit-taking, and panic. The damage caused by the bursting of a bubble depends on the economic sector s involved, whether the extent of participation is widespread or localized, and to what extent debt fueled the investments that inflated the bubble.
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This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace. Related Articles. Markets What Causes Bubbles? Macroeconomics What Causes a Recession? Partner Links. Irrational exuberance refers to investor enthusiasm that drives asset prices higher than those assets' fundamentals justify.
What Is the Bubble Theory? Bubble theory is a theory that markets occasionally push prices above their true values, leading to large or persistent overvaluations in asset prices. Speculative Bubble Definition A speculative bubble is a spike in asset values, fueled by irrational speculative activity, to levels that are not supported by the fundamentals. Tulipmania Tulipmania is the story of the first ever financial bubble, which took place in the 17th century.
Learn About a Bubble in Economics A bubble is an economic cycle that is characterized by a rapid economic expansion followed by a contraction. Meanwhile, Bird's work with bubbles is not yet done. He has just been awarded a one-year fellowship from the US National Science Foundation to continue his research. Bird, J. Nature , Download references.
You can also search for this author in PubMed Google Scholar. James Bird's webpage. Reprints and Permissions. Brumfiel, G. How the bubble bursts. Nature Download citation. Published : 09 June Their result has implications for industrial processes such as glass manufacturing and spray painting and could even shed light on the break-up of respiratory aerosols — a phenomenon that has taken on extra significance due to the COVID pandemic. When a bubble rises to the surface of a liquid, it typically forms a thin, liquid, dome-shaped film supported by the gas trapped inside it.
Once this film develops a hole, surface tension causes the film to retract further, and the bubble bursts. In runny, low-viscosity liquids, the bursting process is over in a matter of milliseconds. In thicker, viscous fluid, it takes longer, yet the film collapses when the hole is barely open. The reason is that as soon as the hole forms, trapped gas can escape from the bubble. Their first experiments were aimed at replicating how viscous bubble collapse had been studied in the past.
Once they accomplished that, however, they did something different: they changed the orientation of the bubble relative to gravity. This, Bird says, was possible because of the extreme viscosity of their test liquid. In these upside-down experiments, the researchers varied the thickness of the films and the viscosity of the fluid, while also providing a way for the air inside a bubble to escape without rupturing the film.
Their results showed that gravity plays only a negligible role in bubble collapse.
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