I have been reading about the worsening housing/rental market, COL and worrying inflation figures as a whole. Seeing lots of talk about this mythical “bubble”- people saying things like “the bubble is about to pop”, and “welcome to the bubble” blahblahblah **BUBBLE**. Seems like this is a common term/knowledge in economics but I don’t fully understand… please eli5 🙂
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It’s also worth noting what is NOT a bubble!
* Some [[thing]] or part of the economy is overpriced, but that alone does NOT make it a bubble.
* Some [[thing]] or part of the economy is seeing higher-than-normal trading volume, but that alone does NOT make it a bubble.
A key part of being a bubble is that some person who wants to Get Rich Quick buys some [[thing]] at some price, not because he wants or needs it; rather, the SOLE purpose to resell (as quickly as possible, usually!) to someone else who -also- hopes to sell it onward and Get Rich Quick.
The [[thing]] in question can be houses, or pork bellies, or silver ingots. High price doesn’t matter (because someone else will pay more than you did); large volume is actually good (indicating there are still people out there -willing- to pay more than you did); but all of those together means that “something” is going to go **Pop!** when volume dries up and there are no more buyers for the now-overpriced [[thing]].
It’s the combination of factors, not just one single thing.
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*Edit to add:* When things go Pop!, if it’s just the last guy left holding the bag — everybody else got paid — then damage is limited to that last guy (figuratively).
But **if** the chain of purchases was funded by -borrowing- money, such that Person A (who sold [[thing]] to Person B) doesn’t get paid until Person B sells to Person C, **then** a whole lotta people are not getting paid, and that’s when things REALLY go to hell in a handbasket.
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