The market operates in two modes, fear and greed. Bubbles form when the greed cycle is unnaturally stimulated by central banks lowering interest rates and making money 'cheap.'

YTell us about fear!

Please tell us about fear, please?

Fear is what happens when the bubble bursts.

It's also why 'liquidity' is a fallacy. After a bubble burst, it doesn't matter how easy the money is to borrow, if people are too afraid to borrow, they won't.

The market operates in two modes, fear and greed.

bubble and burst?

Bubbles form when the greed cycle is unnaturally stimulated by central banks lowering interest rates and making money 'cheap.'

that could explain the housing crash, but what about the internet boom? you're telling me that the whole thing was predicated on 'cheap money'?

i think it's more along the lines of 'get rich quick' schemes. companies threw money at the web when they knew nothing about it, only to get burned. families threw money at banks when they knew nothing about loans, only to get burned. soon, people may see 'alternative energy' as the NEXT BIG THING, start throwing money at it, a shitload of companies spring up and take the money, and many of them will fold, creating another miniature collapse of an industry.

another bubble he suggests is credit. i think we can all agree that credit and borrowing is out of control - maybe the next burst will be hundreds of thousands of people defaulting, or a bunch of credit companies folding somehow.

After a bubble burst, it doesn't matter how easy the money is to borrow, if people are too afraid to borrow, they won't.

i don't know, an awful lot of people took sub prime loans with shit terms. and i get credit card offers all the time with 29% APR, so i assume people out there are taking them.

Nocal, yes. The internet boom was started by hyperinvestment in internet start-ups as well as the push to take them public. Money was easy to borrow for the people financing the start-ups and they quickly became overvalued (as the analysts initially believed that those companies would be able to borrow their way to profitability). Of course, when Greenspan realized what was going on, he started a campaign of raising interest rates, but it was too little, too late.

The greed aspect of the bubble is absolutely a 'get rich quick' motive, but if it is not enabled by 'easy money,' the scheme fails and a bubble never inflates.

This is also (more blatantly) what caused the stock market crash in 1929. People were borrowing money to buy stocks. They pumped the market up. The smart (read: people who stayed rich) people had cashed out over a year before the bubble burst.

If the interest rates had been higher, it wouldn't have seemed like such a good idea to borrow.

i think this guy is wrong... i think the US economy is strained beyond repair, running mostly on inertia, and will have to break down pretty soon, if it hasn't broken down completely yet.

Iran will start selling oil in euros in a few days, while the US keeps on printing paper. the dollar is way overvalued at this point. it will stop being a reserve currency for the world in the next few months.