For several months, more and more authorized voices have been warning about the bursting of the financial bubble. This is a very unwanted scenario on the part of the different financial agents, although it is true that it is a term that is unknown to a large part of the public. With the gravity of the effects that this dreaded scenario can bring they are very feared by all. Not surprisingly, it is something that can affect the most relevant aspects of the economy. From job creation to the economic growth of a country.
Before starting to check the repercussions of the financial bubble, nothing better is to verify its real meaning. Well, this economic scenario basically consists of a better performance than this phenomenon that is generated in the financial markets, largely due to a process linked to speculation. It can be derived for different causes and of diverse nature, such as real estate, stock market or any other type. There are no restrictions regarding the origin of these economic or financial processes of special relevance.
One aspect that must be addressed in order to understand it in all its intensity is what refers to its repercussions on the society that is the victim of this complex movement. Well, it cannot be forgotten that one of the most common ways for it to occur may be due to an abnormal and prolonged rise in the price of certain shares or even real estate. To the extent that its most immediate effect is the appearance of an important spiral of so-called speculation. And what are its most immediate effects? Well, unfortunately what hurting the economy in general.
Bubble: in which financial assets?
The financial bubble can emerge in any financial asset, however rare it may be. In this sense, there are no class of exclusions as confirmed by the experience of recent years. Any of them can bring some effects that should be considered less as evil. There may be what is constituted as a bubble in the equity markets derived from debt. Not surprisingly, they go through the same process in all cases. To the point of being unmistakable for a good part of the economic spectators. As a reality to explain it correctly and make it understandable for all users.
From this general scenario, there is no doubt that begins in a clearly unmistakable way. That is to say, there is an unusual overheating in their prices that leads them to reach certain disproportionate levels. Whatever the affected financial asset, a property, public debt or even any precious metal. As a consequence of this action, investors can earn a lot of money in the developed operations. But they will have to close their positions very quickly because they can lose a large part of their capital in a very short period of time.
The excess value shoots up
The process in which the financial bubble forms is more noticeable with the increase in the price of a financial asset. Because if this unique process is characterized by something, it is because the assets in question rise disproportionately and abnormally prolonged during a certain period of time due to an increase in sales that skyrocket its value. Until reaching levels that perhaps they have never reached and that attracts the attention of small and medium investors. Not surprisingly, we are talking about movements in the financial markets that are not normal at all. If not, on the contrary, they are clearly exceptional as you can see in the explanations of this article.
On the other hand, this scenario can help you to sell later and in this way achieve excellent capital gains in the operations carried out on the financial assets that go through this scenario. While on the other hand, the after effect is completely the opposite. That is, when the price of the products or assets has been object of speculation they are far from the real value that they should have at that time. The most immediate effect is that the price jumps through the air as they say vulgarly. With a fall that can jeopardize the investments of the users.
Crash in prices
Prices may drop by up to 50% or even with more intensity or what is the same they collapse with great virulence. In movements that are totally abnormal in their development and that can even reach a zero value, as has happened recently with some other financial asset. This is one of the risks of being positioned in this class of securities or financial assets. Because you cannot forget that you can lose almost all the investment made up to this moment.
That is why it is not surprising that these unusual movements are called crack and that can be generated even in the equity markets and more specifically in the stock market. To the point that they can destroy the wealth of a country as they are very dangerous movements in all aspects of the economy. From this perspective, you cannot forget that in its development you should avoid being positioned because you can see yourself immersed in a great spiral of losses. More than you can imagine from the beginning.
Germ of a great depression
A review of history does not reveal that these movements can be the origin of a great depression in the economy of a country or even on a world scale. There are examples of what happened in the Great Depression of the 30s in the United States and the lesser known real estate bubble in Japan in the 80s. They are very illustrative of the effects of this dangerous movement on financial assets. Much more than a drop in price from its real or at least estimated value.
Because in effect, it can lead to a country's economy collapsing. With less economic growth, more unemployment and with the value in the price of money on the floor. In short, in the worst possible scenario when it affects the foundations of a nation. In this sense, nowadays people are talking about the fact that there is a bubble in public debt and that at any moment it could ruin the expectations of small and medium-sized investors. In this sense, a good part of financial analysts recommend their clients not to be exposed to fixed income of these characteristics. Because they can lose more than win.
Real estate bubble in Spain
One of the closest scenarios is the one we are experiencing in Spain with the price of housing. Because in effect, it is rising again to levels not seen in recent years and that may be the trigger for this distortion in prices to occur. In the sense, that investors in this class of properties are making a lot of money in their operations. But of course they run the serious risk that lose courage as a consequence of a bubble of these characteristics. Not surprisingly, it is the same process that was experienced in Spain with the onset of the economic crisis. Where the house price plummeted to levels not expected by the new owners.
Industry analysts are already warning that this same process can happen. One of the symptoms to reach this conclusion is the sharp increase in the price of rental During the last months. In large capitals it has reached prices that are really prohibitive for a good part of the possible comparators. This is a serious warning about what is happening with the warming of the real estate market price. A fundamental sector for the Spanish economy and that if it occurs could ruin the economic recovery in Spain.
Solutions to tackle the problem
Before the terrible effects of the economic or financial bubble arrive, there will be no choice but to take a series of measures to reduce its incidence. Of course, to tackle the problem, the European Central Bank is in a position to raise the interest rate banking, and, little by little, the prices of the actions and of the floors go to the normality. As is desirable for a large part of the economic agents that participate in this remarkable process. On the other hand, you also have to take into account everything related to the law of supply and demand.
In any case, we are talking about one of the most dangerous scenarios for the economy of all countries and that governments try to prevent it at all costs. Because its repercussions are lethal for the interests of all. Although on the other hand, it is not very normal for these problems to emerge with some frequency. If not, on the contrary, they are rather temporary periods.