

The key ingredient of market bubbles: cheap money - cwan
http://articles.moneycentral.msn.com/Investing/JubaksJournal/the-key-ingredient-of-market-bubbles.aspx

======
lotharbot
It's largely a matter of supply and demand, with the recognition that
"dollars" (and other forms of currency) are just another product.

Since about 1995, it's been easy to get dollars. Interest rates have been low,
so present dollars have been easy to get for the promise of future dollars.
With an oversupply of dollars, their value drops in relation to other
products, particularly whatever the investment vehicle of chioce is (tech
stocks, real estate, minerals, etc.)

Combine this with a herd mentality -- people wanting to invest in whatever's
"hot" -- and dollars keep flowing into one particular sector long after it's
no longer a fundamentally good investment. The bubble inflates, and then
eventually bursts. For a short period of time, dollars are hard to come by
(and those who have dollars can often pick up assets on the cheap) as everyone
who just got burned hoards whatever they have left... until they go chasing
the next hot investment.

The housing bubble was particularly nasty because, not only were interest
rates low, but banks were loose with their lending standards because they
weren't directly on the hook for the loans they gave out. This allowed people
to get a lot more dollars than they should've been able to pick up -- big
housing loans with no down payment and no proof of income. Unsurprisingly,
this led to housing prices rising well beyond sustainable levels, and then to
a lot of people not being able to pay off their loans. All because people had
easy access to money.

------
jswinghammer
This is the basis for the Austrian Theory of the Business Cycle. Nothing new
here really.

<http://en.wikipedia.org/wiki/Austrian_business_cycle_theory>

~~~
fexl
Yep -- old and true.

------
roboneal
Biggest suppliers of cheap money - so called central banks underwritten by
essentially clueless taxpayers - scratch that - future taxpayers.

