Rick KeloWhat is an Economic “Bubble”?

With the recent collapse of our national economy and the global impactit has had around the world, buzzwords such as “bubble” have enteredthe mainstream conscious. We have used it to describe finance, housing,economics, and of course the internet and technology. However, despitethe now ubiquitous nature of the term, few people actually understandwhat a bubble is in an economic sense. More often than not, the termcomes through as industry specific jargon that flies above most people’sheads. Luckily, there are resources online to help explain such concepts.

As an example, for Rick Kelo, understanding the complexities of the economy is theprimary goal for the content that he publishes on his website. A recent article titled“The Economics of a Rick keloBubble with Rick Kelo” explains exactly what a bubble is,in plain English for the average individual to understand. In short, a ‘bubble’ is thetrade of an asset or product at a price or price range that deviates from the actualintrinsic value of the asset or product. In practicality, it usually manifests as a rapidescalation of asset prices followed by a dramatic contraction. This rapid escalation isdriven by what economists generally call “exuberant market behavior” in whichinvestors are willing to buy a product or asset at an elevated price, until they aren’t,and a massive sell off occurs causing the bubble to deflate or break down.

This is what happened at the turn of the century in conjunction with the dot-com and technology boom. People were purchasing tech stock prices at highprices, believing they could sell them at an even higher price later, untilconfidence was lost and a large market correction, or bubble collapse,happened. This left the price of the stocks low and many investors without anopportunity to sell the inflated stocks they had previously purchases, losingthem significant amounts of money and investment opportunities. Of course,when you get into the finer details there are a million interrelatedcomponents to the actualization of a bubble collapse in any economy and thescope of this article can’t handle that amount of minutia.

For Rick Kelo, exposing the fault lines of our economies by explaining concepts such as economic bubbles is a means of helping individuals to avoid mistakes associated with such faults. With even a basic working knowledge of the economy, individuals are much more secure in their financial futures and have a much more limited risk of making irresponsible financial decisions for themselves and their families.