| mrstickball said: An example of a non-government created bubble would be the .com bubble that burst in 2000. It was due to many, many over-valuations of internet based IPOs. Wasn't created by the government. |
The Austrian school argues that every bubble is actually created by government interference with markets, in the sense that the central bank ends up making interest rates too low, and causes malinvestment to happen, which then drives a bubble.
I would argue that would play a roll with it. Also have to ask here if it is considered that the dotcom bubble gave way to the housing bubble. People end up looking for the next thing. A perfect storm of deregulation, government cheerleading on lending, combine with mechanism that HAD worked for loans, ended up with an overvaluing of the housing market, and combined with leveraging, resulted in the mess we had. Throw in also that the mathematical formulas used for evaluating the credit worthiness, used by the markets, had a mess. The markets were looking for the next thing, so everyone piled in on it, and the things crashed.
Is the only basis of growth we have now is short-run bubbles? We had 2 over a 10-15 year period. And apparently it took an dotcom bubble to only be able to balance the U.S federal budget. It seems now that everyone ends up rushing into anything that shows the most growth, and overinflates it. I would say if the trendy thing is to do, mark-to-market accounting, one is asking for trouble also:
http://en.wikipedia.org/wiki/Mark-to-market_accounting
Mark-to-market or fair value accounting refers to accounting for the fair value of an asset or liability based on the current market price of the asset or liability, or for similar assets and liabilities, or based on another objectively assessed "fair" value. Fair value accounting has been a part of Generally Accepted Accounting Principles (GAAP) in the United States since the early 1990s, and has been used increasingly since then.
Since the 1990s? If that is the case, wouldn't that lend to the creation of bubbles? If people are pricing things based upon what the current market price is, all it takes is for there to be an abnormal rise in prices, for everyone then to overvalue assets, and then if they leverage on top of that? Isn't there an asking for bubbles to happen?
