Financial Bubbles That Left the World Economy Crumbling Down

The history of financial bubbles dates back to decades, if not centuries ago. During such times, assets such as land, stocks, commodities experienced a peak in prices. Later on, this resulted in crashes and massive losses to investors. Nevertheless, financial bubbles burst with a varying degree of effects depending on the type of assets involved. This article reveals the most significant financial bubbles of all time.

1. Tulip Mania

The tulip mania came about when tulips started being developed and sold for profit. The tulip mania started in the Dutch Republic in 1634. During this time, the demand for the bulbs rose and was trading at exorbitant prices. 

Interestingly, acquiring tulip bulbs was a status symbol and a dream for almost everyone. The prices kept on soaring, and even the cheapest bulbs were selling for ridiculous prices. Soon, the bubble burst, and the prices nosedived, leaving many investors battling huge losses.

2. South Sea Company Bubble

The South Sea Company was founded in 1711 as a British joint-stock company. It was granted a monopoly over all the neighboring islands as well as the South seas. Due to the many rumors about high-profit returns, many investors rushed to invest in the business.

Shortly, the company’s share price escalated and had hit a thousand pounds by mid-1720. Moreover, the market value of the share price also rose significantly. Later on, the prices came crashing down, leaving many investors bankrupt.

3. The US Housing Bubble

US house prices almost doubled between 1996 and 2006. A high percentage of this increase took place between 2002 to 2006. House prices were increasing at an unbelievable rate, and every investor was seeking ways to benefit in the real estate market. The prices peaked in 2006 and consequently started crumbling down. The burst had a ripple effect that caused the US Great Recession.

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4. The Dotcom Bubble

The Dotcom bubble is one of the notable bubbles of the 1990s. It happened when the internet gained lots of popularity, and this increasing fame triggered many investors into the wave of new businesses. Most dotcom firms received a million-dollar appraisal instantly. Most of the company stocks rose in price and the NASDAQ hit a peak at 5048 on March 10, 2000. Afterward, the index crashed, causing the US recession.

5. The Japanese Bubble Economy

Between 1960 and 1980, Japan hit the highest economic growth rates in the world. The government started de-regulating financial markets, enabling financial institutions to reach out to new customers.

In the 1980s, the government developed their monetary policy further, growing the money supply and decreasing interest rates. Low-interest rates and easy access to credit resulted in a speculative bubble which drew investors from different parts. The stock market bubble was mostly fuelled by the Japanese invention “Zaitech.”

The Bottom Line

All bubbles are different with varying burst effects. Most investors ignore the cautionary signs and still keep investing. With a giant bubble, you expect more significant damage when it bursts. Many other bubbles have since taken place, but listed above are some of the big bursts whose effects are valuable lessons to all investors.

 

 

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