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Richmans' Trade and Taxes Blog
Bubbles are popping - a recession is coming!
An economic bubble occurs when people have been bidding up something because they think that the price will keep going up. Once the price starts heading down, it goes down fast. There have been several famous bubbles in history including:
1. The Tulip Bubble
2. The South See Company Bubble
3. The U.S. House Price Bubble
David Stockman, former budget director under President Reagan, writes (Bubbles Don't Correct, They Burst):
When a stock market bubble collapses, stock owners suddenly find themselves to be less wealthy. So they stop spending as much money on consumption. At the same time, businesses expect consumption to fall, so they stop spending as much money on new tools and structures.
As a result, when bubbles pop, the economy usually goes into a recession. That's what I see coming next for the U.S. and world economies.
Comment by Ron V, 8/29/2015:
Good article. I believe Mr. Stockman is correct.
The fed is really hesitating to raise interest rates, while our news media and the government, is playing Mr. Rogers theme song; It's a "Wonderfull Day in the Neighberhood". It indeed makes one wonder which set of numbers they are useing, those that are rea,l or the ones that are broadcast to the public, such as the unemployment rate of 5.3%, the adjusted and readjusted GDP etc..
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