Most Famous Economic Speculative Bubbles in History
Isaac Newton about the South Sea Bubble
“I can calculate the movement of the stars, but not the madness of men”
Speculative bubbles in history of economics and humankind is a fascinating subject, that is studied in many universities and schools, and we, writers at Accounting Homework Help, decided to gather interesting facts and analyze important data on the most famous economic speculative bubbles in history, and have prepared an infographic, to showcase our research on the subject. Enjoy!
It seems, that again and again throughout history people wanted to make easy money on speculative stocks. At first, some commodity or service looks like an easy investment opportunity, that brings easy money for its shareholders. People inflate the cost of this stock, by pouring money, with no intention of keeping the shares, but rather planning to resell it, as quickly as possible, just after the price for the bought shares grows, and the difference between the money spent, on the stock, and money received from the selling, make the investor’s profit. , Thus, economic bubbles appear. This we have showcased in our Speculative Bubbles in History Infographic.
Let’s take a look at the most famous economic speculative bubbles throughout history, that our writers at ” do my accounting homework ” have written down in our 10 Greatest Speculative Economic Bubbles in History [Infographic].
Speculative Bubbles in History Infographic
1. Tulipmania (1634-1638)
Tulip became an object of speculation, when, using a simple derivatives market, contracts for tulips trading were signed, and helped develop Dutch economy.
People mortgaged their houses and business to buy and sell bulbs. It all ended basically in the week, when traders stopped honoring their contracts, and thousands of investors found themselves with nothing. Dutch economy went into recession.
2. The Mississippi Bubble (1719-1720)
Shares of French Mississippi Company were at the center of this bubble. The company was created by the French government to help fund French national debt, by selling the shares of the company. For a while, the price of shares grew from its nominal value of 500 livres per share to 10, 000 livres/share before plummeting below its starting price in 1720, worsening the existing inflation in the French economy.
3. South Sea Bubble (1711–1720)
South Sea Company British joint-stock company was founded in 1711 as a scheme of the British government to reduce the cost of national debt. In return for buying the shares, the investors were promised exclusive trading rights in South America. Since this was an unrealistic prospect, with time the value of shares collapsed, and number of politicians were disgraced, businesses went into bankruptcy.
4. Railway Mania (1840s)
As prices of railway stock increased in Great Britain, more and more money was invested by speculators, triggering the value of shares to unrealistically high price. And even though, some good came out of this bubble, since the railway system of Britain was expanded due to this economic bubble in history, this development was done for the inflated cost.
5. Bull Market of the Twenties (1924-1929)
Economic and cultural boom in United States, sponsored by industrialization and the popularization of new technologies , and the growing use of leverage, or debt by individuals and companies, was at the center of this bubble. As a result, more than $16 billion of market capitalization has been lost on New York Stock exchange in 1929.
6. Japanese “bubble economy” (1984-1989)
Japanese financial speculation used by companies – “zaitech,” or “financial engineering,” was at the center of this bubble. After growing rapidly in market value without any true economic bases for a few years, despite the Japanese government best effort, Nikei stock index fell from 39,000 to 15,000 in 1992.
7. Bubble “Dotcom” (2000s)
Speculative bubble based on the inflated shares of early internet companies called “Dot-coms.” At first, after US companies switched from producing hardware to producing computer software, the prices of such companies rocketed. After the Dot Com crises, the US economy went into recession.
8.United States Housing Bubble (2007- nowadays)
Real estate prices that rose steadily in the United States for decades, supported by low interest rate were at the center of this bubble. Mortgages became available to just about everyone with programs sponsored by government, which allowed money in the hands of some irresponsible homeowners who would later default on payments. Institutions that owned that owned subprime mortgages bankrupted and brought down others. Housing crises in US started the chain reaction, first in the US Banking sector, which later led to the world Financial crises of 2008-2009 all over the world.
9. Rhodium Bubble (2008)
At the center – prices of the rare chemical element. Cause of the crises was the stock market frenzy, caused by demand in the American car industry, and the stock traders “bulls” actions. Rhodium is mainly needed as a by-product of other metals such as platinum, so the production is based on production and demand of other metals and less on the demand of rhodium itself.
10. Bitcoin Bubble (2013)
Bitcoin is the modern-day digital currency, with unique bitcoin’s code, which so far has been hacker attacks- proofed. “Digital gold” was welcomed by people who are afraid of the consequences of the Federal Reserve’s money-printing system. Bitcoin has a fatal flaw- when too many miners form a group, they can create a monopoly of the entire Bitcoin system.
Some of the Bubbles, Believed to Exist Now
- Gold Bubble
- Social Media Bubble
- Developed Economies Housing Bubble
- Emerging Economies Bubble
Which Bubble do you predict will burst first?