It is important to note that not every price increase is associated with the bubble union square fa

Economic newspaper asked me for answers to questions about the origin and behavior of economic bubbles. Finally, the reply by using only a small part, so here are the answers in the original version (without subtitles). union square farmers market At the very similar questions were answered and Miroslav Bunny.
From the tone of the published article and my answer union square farmers market is evident that there is a significant difference in how the media and economists understand the concept of economic bubble. In economics, the concept of economic bubble clearly defined (see below), while the published article understands this concept more broadly, so that a bubble marks as well as many other price fluctuations.
The price of the asset is determined by its fundamental value - the present value of all future payments (such as dividends) that this asset brings - but it is higher because union square farmers market it includes the ability to sell the asset in the future union square farmers market to someone else for inflated prices.
For simplicity, imagine a financial instrument that is absolutely worthless - such as a piece of paper you sign it and offer it to you to purchase. Would you be willing to buy it for a non-zero price? The surprising answer is yes, if you are confident that you will be able to resell in the future, and at least slightly to make it. The same must be convinced and whoever of you this piece of paper on future purchases, and so on. If investors wake up sufficiently strong expectations that this mechanism will last well into the future, union square farmers market may arise bubble. Economists call this phenomenon a self-fulfilling expectations.
A somewhat different mechanism bubbles are based on different expectations of investors. Imagine a market that is rational in diameter, but some people are optimistic and pessimistic union square farmers market others. Even such an average rational market under certain conditions show signs of an economic bubble, because investors are willing to buy assets now at a higher price in the hope that in future asset sell any investor optimism.
Economic bubbles are based purely on investors' expectations, and it also is their instability. Investors' expectations about the stability of bubbles is subject to change union square farmers market and investors who worthless instrument remains in the hands lose money. However, there is an example where these expectations are based on the Law - and that is fiat money, ie currency, that each of us is commonly used.
Why did for his work willing to accept union square farmers market wages in the form of paper money? Certainly not because that would bring direct benefit bills - you can not eat them and when you shove them under her pillow, nothing could grow. Banknotes accept union square farmers market only because union square farmers market of your belief that the future will see you from someone else and you get something useful union square farmers market in return. But even this next man solves the same problem union square farmers market - he accepts the bill just because it will in the future be exchanged.
From an economic viewpoint, the circulation of fiat money bubble economy whose stability is based on the Law, which stipulates the obligation to take notes during transactions, and our confidence in stable monetary policy. Economic bubble can therefore in some cases be quite useful. union square farmers market
- Do you think that nowadays it sometimes union square farmers market give birth to some new bubbles in the markets? How about Chinese stocks, American technology stocks, food prices or something else? Can some of these bubbles optionally fall on world problems as seriously as real estate and consequently the recent financial crisis?
It is important to note that not every price increase is associated with the bubble union square farmers market economy, and it is usually difficult to distinguish between changes in market prices caused by changes in the fundamental value of the changes induced behavior similar bubbles. Mark increase in prices for many a bubble is extremely easy and unfortunately often distracts from finding the real causes union square farmers market of inflation.
It is usually easier to create economic bubble on fixed assets (such as shares or property). The essence union square farmers market of bubbles is thought that it will be possible to sell the asset to another person union square farmers market for an overvalued price in the future. union square farmers market However, if it is a short-term asset, space is limited for resale.
That's why I, for example, in the case of the current rise in food prices convinced (unlike union square farmers market the article economists) at that largely influence is the supply and demand for physical commodities and not a bubble caused by speculation on the derivatives market. The increase in food prices may indeed have adverse effects, particularly in developing countries, but the bubbles in this case would cause an increase sought.
Certain aspects like economic bubble may have, such as Chinese investment in construction. In this case, however, are overly optimistic estimates of investors' unrealistic estimates replaced by central planning.
Perhaps the greatest threat that might be the economic bubble, then the award of public debt on both sides of the Atlantic. Some European Union countries have already got into trouble at others it can not be excluded. On the other hand, is in a similar situation as Greece or Ireland may even get some US states. These bonds maybe in a few years also tells