Why bubbles happen.

The history is full of bubbles that often lead to financial crises. The most known is probably the Wall Street crash of 1929 which led to the historical period called the Big Depression. The most recent is the 2008 subprime mortgages crash and likely there is one just upcoming, probably the biggest of them all.

These bubbles seem to burst suddenly leaving most people unable to react and causing severe financial damages to people's wealths.

In reality it is possible to identify bubbles though it is often impossible to predict the exact time when they burst. People can see a bubble, provided they open their eyes.The pin that pricks the bubble is on the other side often difficult to identify. In general a pin is an event that makes people losing confidence in the system. It may also happen that there is no pin and the bubble pricks by itself when it becomes too inflated.

Being able to recognise a growing bubble can help you to protect and preserve your wealth. If you play well enough you can also make lots of money in a growing bubble, though this is pure speculation.

In order to become able to recognise growing financial bubbles you need to understand the mechanisms that form them. The initial step is to analyse and understand those financial crises that happened in the past which is what I am going to do in the next posts.

#financial #crises #bubble #pin