Monday, August 20, 2012

Everything is Not a Bubble

[Author: William Rapp, New Jersey Institute of Technology] 

Many books written after a financial or economic crisis including the collapse of a major bubble seem primarily designed to shock and scare the reader with respect to the just past economic catastrophe and the one looming just around the corner. Indeed after an economic crisis such as the recent Great Recession there seems to have been a bubble in books about bubbles as each author competes with other experts in explaining how it happened, how that particular author saw it coming and how the next one can be avoided.

In addition the popularity of the word appears to result in every economic and financial problem becoming a bubble including the Euro Crisis centered in Greece but also involving Ireland, Portugal, Spain, Italy and even France. It is in this way that many financial gurus can identify several bubbles affecting the US or global economy that will come together to create a massive and coordinated bubble and crash that only they can help investors and policy makers avoid. 

However, from the perspective of analyzing bubbles generally or a specific bubble such as the one leading to the Great Recession, there are several problems with this general labeling and analysis especially if it is to be used as an investment or regulatory strategy. 

Click here to download the complete paper.