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Bubble Formation and Squeezing - Coggle Diagram
Bubble Formation and Squeezing
At some point in 2005 the asset inflation became more likely to cause a recession than the exchange rate reform
3 stages of a bubble
Seeding Stage
after a recession the bubble starts building as there is an inertia after the rrecesion
its difficult the curb the asset prices at this point since we are risking destroying the rocivery
Development stage
many people start investing and many people woudl start investing even with borrowed money
more borrowing and soending because consumers predict inlfation
change in behacviour
the money multiplier increases
it is already very difficult to curb the bubble by now
Final Stage (herding behavior)
baks chiefs executives and investors are pressured to join the stock market
once everyone joined the market the price stops and then drops
Vicious Cycles
between property price inflation and share price hike
Rising Share Prices Fuel Property Demand: As share prices increase, investor wealth grows. This increased wealth leads to higher demand for real estate (property), pushing property prices upward.
Rising Property Prices Boost Share Prices: The increase in property prices benefits real estate companies listed on the stock market. This boosts investor confidence in these companies, increasing demand for their shares and driving share prices even higher.
between the stock market boom and rising consumption and investment which would fuel the rise in share prices
Stock Market Boom Increases Wealth & Confidence: Rising share prices boost investor wealth and confidence, leading to increased consumption (spending by households) and investment (spending by businesses). This is often called the "wealth effect."
Increased Consumption & Investment Boost Share Prices: Increased consumer spending fuels economic growth and increases corporate profits. Increased business investment further boosts economic activity and corporate profits. This positive economic outlook, combined with increased consumer demand for goods and services, increases demand for company shares, driving their prices higher.
because of bad recommendations by think tanks
at the end they managed to curbe it but veryquickly
a more moderate correction would let more investors to withdraw their money and not lose so much money
Two options for bubble curbing
worth it eve nif it slowered down GDP
Severe recession but NOT disastorous political instability
Severe recession and disastorous political instability