Editing Economic bubble (section)

== Stages ==
According to the economist Charles P. Kindleberger, the basic structure of a speculative bubble can be divided into five phases:<ref>{{Cite book |last=Kindleberger |first=Charles |title=Manias, Panics and Crashes : A History of Financial Crises |date=2001-12-13 |publisher=Palgrave Macmillan UK |isbn=9780333970294 |edition=4th |pages=13–22}}</ref><ref>{{cite journal |last1=Odlyzko |first1=Andrew |title=The British Railway Mania of the 1840s |journal=University of Minnesota |url=http://www.dtc.umn.edu/~odlyzko/doc/hallucinations.pdf |access-date=29 November 2018}}</ref><ref>{{cite journal |last1=Tuckett |first1=David |last2=Taffler |first2=Richard |title=A Psychoanalytic Interpretation of Dot.Com Stock Valuations |journal=SSRN |url=https://poseidon01.ssrn.com/delivery.php?ID=528094093074031101089003070092079027051081060000028091094066076023096066009064071087049101030035000120107082010001126075075043040054037014118064084014024092109031018002116126125009099066072000002099126021072000111114111123096027109072102082072074&EXT=pdf |access-date=29 November 2018 }}{{Dead link|date=February 2024 |bot=InternetArchiveBot |fix-attempted=yes }}</ref>
* Displacement: A sufficient external shock to the macroeconomic system, creating new profit opportunities.
* Boom: A rise in asset prices and speculative investments (buy now with sole intention to sell in the future at a higher price and obtain a profit).
* Euphoria: A democratization of speculative investments, and a detachment from real rational valuable objects.
* Financial distress: Prices begin to plateau, investors start considering selling to cover their liabilities.
* Revulsion: prices plummet as investors race to sell first, panic spreads and feeds back on itself.

===Identification===
[[File:SP 500 Price Earnings Ratio (CAPE).png|thumb|400px|right|CAPE based on data from economist Robert Shiller's website, as of 8/4/2015. The 26.45 measure was 93rd percentile, meaning 93% of the time investors paid less for stocks overall relative to earnings.]]
Economic or asset price bubbles are often characterized by one or more of the following:
# Unusual changes in single measures, or relationships among measures (e.g., ratios) relative to their historical levels.  For example, in the [[United States housing bubble|housing bubble]] of the 2000s, the housing prices were unusually high relative to income.<ref>{{cite news |url=http://www.bloombergview.com/articles/2013-12-06/how-do-you-define-a-bubble-and-are-we-in-one-now- |title=Bloomberg-Barry Ritholz-How do you define a bubble and are we in one now? December 2013 |newspaper=Bloomberg.com |date=6 December 2013 |access-date=31 August 2017 |archive-date=15 April 2016 |archive-url=https://web.archive.org/web/20160415143029/http://www.bloombergview.com/articles/2013-12-06/how-do-you-define-a-bubble-and-are-we-in-one-now- |url-status=dead }}</ref> For stocks, the [[Cyclically adjusted price-to-earnings ratio|price to earnings ratio]] provides a measure of stock prices relative to corporate earnings; higher readings indicate investors are paying more for each dollar of earnings.<ref>{{cite news|url=https://www.nytimes.com/2015/08/26/upshot/part-of-the-problem-stocks-are-expensive.html|title=Part of the Problem: Stocks Are Expensive|first=David|last=Leonhardt|date=25 August 2015|access-date=31 August 2017|newspaper=The New York Times}}</ref>
# Elevated usage of debt (leverage) to purchase assets, such as purchasing stocks on margin or homes with a lower down payment.
# Higher risk lending and borrowing behavior, such as originating loans to borrowers with lower credit quality scores (e.g., subprime borrowers), combined with adjustable rate mortgages and "interest-only" loans.
# Rationalizing borrowing, lending, and purchase decisions based on expected future price increases rather than the ability of the borrower to repay.<ref>{{cite web|url=http://www.levyinstitute.org/pubs/wp74.pdf|title=Levy Institute-Hyman Minsky-the Financial Instability Hypothesis-May 1992|access-date=31 August 2017}}</ref>
# Rationalizing asset prices by increasingly weaker arguments, such as "this time it's different" or "housing prices only go up."
# A high presence of marketing or media coverage related to the asset.<ref name=":0" />
# Incentives that place the consequences of bad behavior by one economic actor upon another, such as the origination of mortgages to those with limited ability to repay because the mortgage could be sold or securitized, moving the consequences from the originator to the investor.
# International trade ([[Current account (balance of payments)|current account]]) imbalances, resulting in an excess of savings over investments, increasing the volatility of capital flow among countries. For example, the flow of savings from Asia to the U.S. was one of the drivers of the 2000s housing bubble.<ref>{{cite news|url=https://www.nytimes.com/2015/08/24/opinion/a-moveable-glut.html|title=A Moveable Glut|first=Paul|last=Krugman|date=24 August 2015|access-date=31 August 2017|newspaper=The New York Times}}</ref>
# A lower interest rate environment, which encourages lending and borrowing.<ref>{{cite web|url=http://fcic.law.stanford.edu/report/conclusions|title=Get the Report: Conclusions : Financial Crisis Inquiry Commission|website=fcic.law.stanford.edu|access-date=31 August 2017}}</ref>