Bubbles are Everywhere
Absurdly high prices. Debt. Stocks in 1928. Tech companies in 1999. Housing in 2007. The 1637 Dutch Tulip Mania. These are the things people associate with economic bubbles. Ask most people and they will tell you a bubble is when people pay more for a thing than it is worth in a reasonable market. That's a simple model for demand bubbles, but not the complete picture. For many quantitative economists, the basic bubble is the speculative, positive price variance bubble. But, there are also negative bubbles, when pricing collapses yet producers continue to believe demand (and prices) will soon increase offset the oversupply. These are deflationary gluts. Bubbles, positive and negative, occur when the market price for any good or service rapidly departs from the long-term median trend of price stability. A severe bubble is when a significant number of consumers are willing to go into debt to obtain a good or service with the primary intention of selling the good (or serv...