The Wild Ride of Speculation Bubbles
Speculation bubbles: exhilarating, unpredictable, terrifying

by daniel

The Dutch Tulip Mania

1

Tulip Bulb Prices Soar
Single bulbs traded for house prices

2

Speculative Frenzy
Investors driven by greed, FOMO

3

The Inevitable Burst
Prices crashed, fortunes wiped out
The Dot-Com Bubble

1

Internet Stocks Skyrocket
Fueled by hype, disregard for fundamentals

2

Speculative Mania
Fear of missing out on "next big thing"

3

The Burst in 2000
Trillions in losses, investor confidence shattered
The Golden Age of Gold
Intrinsic Value
Gold scarce, effort to obtain
Backbone of economies for centuries
Paper Money Emerges
More flexible money supply needed
Initially backed by gold reserves
Transition to Fiat
Currency without intrinsic value
Allowed economic growth, introduced risks
Roman Currency Debasement
1
Powerful Roman Empire
Controlled vast territories, immense wealth
2
Reducing Silver Content
To finance lavish lifestyles, wars
3
Runaway Inflation
Loss of trust in currency
4
Economic Instability
Highlighting need for sound policies
John Law's Banque Royale

1

Introducing Paper Money
Law convinced French government

2

Initial Economic Boom
But over-issuance led to hyperinflation

3

The Collapse
Currency value plummeted, economic ruin
Weimar Republic Hyperinflation
Worthless Currency
Wheelbarrows of banknotes for goods
Economic Devastation
Savings wiped out, instability
Rise of Extremism
Fertile ground for political upheaval
Argentina's Currency Peg

1

1990s: Peso Pegged
To US dollar to curb inflation

2

Initial Growth
Confidence restored, investment attracted

3

Eventual Collapse
Mounting debt, social unrest

4

Devaluation
Peg abandoned, peso plummeted
The Rise of Securitization
Mortgage-Backed Securities
Bundling loans into tradable assets
Enabled risk offloading, more lending
Subprime Mortgages
High-risk loans fueled housing bubble
Hidden within complex securities
The 2008 Crisis
Defaults led to collapse
Exposed lack of transparency
Derivatives: Risk and Opportunity
Hedging Risks
Derivatives provide insurance against volatility
Speculative Trading
But also enable high-risk bets
Lack of Transparency
Opaque OTC derivatives markets
Systemic Risks
Potential to destabilize financial system
Stock Market Boom-Bust Cycles
1
Investor Optimism
Driven by innovation, economic growth
2
Speculative Frenzy
Prices reach dizzying heights
3
The Inevitable Burst
Bubble pops, panic selling
4
Steep Losses
Fortunes wiped out overnight
The Power of the Fed

1

Monetary Policy Influence
Adjusting interest rates, money supply

2

Regulating Banks
Ensuring financial system stability

3

Global Impact
Affecting exchange rates, trade, capital flows

4

Crisis Response
Bailouts, quantitative easing in 2008
The Housing Bubble Bursts

1

Easy Credit, Subprime Lending
Fueled housing price surge

2

Mortgage-Backed Securities
Bundled risky loans into tradable assets

3

Borrower Defaults
As housing prices fell

4

Securities Value Collapsed
Triggering financial crisis in 2008
The Dot-Com Crash
Internet Stocks Soared
Fueled by hype, disregarding fundamentals
The Bubble Burst
In 2000, fortunes wiped out
Industry Maturation
Paved way for sustainable growth
Adam Smith's Invisible Hand

1

The Wealth of Nations
Seminal 1776 work on economics

2

Self-Interest Driving Markets
The "invisible hand" concept

3

Division of Labor
Specialization increases productivity, efficiency
Marx's Critique of Capitalism
Das Kapital
1867 work analyzing capitalist economies
Theory of surplus value, exploitation
Class Struggle
Inherent conflicts between labor and capital
Calls for revolution, socialism
Lasting Impact
Inspired debates on inequality
Influenced socialist, communist movements
Keynesian Economics

1

The General Theory
Challenged classical economic thought

2

Aggregate Demand
Role of govt spending, fiscal policy

3

Policy Influence
Shaped post-WW2 economic policies

4

Lasting Legacy
Debates on economic intervention
Milton Friedman's Monetarism
Monetary History of US
Highlighted role of money supply
Cause of economic fluctuations
Free Market Advocacy
Criticized Keynesian policies
Called for limited govt intervention
Policy Influence
Shaped central bank policies
Neoliberal economic agenda
Thomas Aquinas: Just Price

1

Summa Theologica
Explored ethics of economic transactions

2

Just Price Concept
Fair, prevents exploitation

3

Condemnation of Usury
Charging excessive interest on loans

4

Influence on Church
Shaped economic ethics teachings
Luther's Economic Ethics
Wealth and Usury
Condemned excessive interest rates
Fair Treatment
Just wages, decent working conditions
Protestant Work Ethic
Hard work, integrity in vocation
Calvin's Capitalist Spirit

1

Predestination Doctrine
Success seen as divine favor

2

Vocational Calling
All work a form of worship

3

Stewardship of Wealth
Use profits to benefit community

4

Protestant Work Ethic
Disciplined approach to economic activity
Vitoria: Economic Justice

1

School of Salamanca
Emphasized rights in economic transactions

2

Just War and Commerce
Critiqued colonial economic abuses

3

Common Good
Economic activities should promote welfare
Rerum Novarum
Rights of Workers
Living wage, unions, property rights
State role in ensuring justice
Dignity of Work
Economic policies supporting families
Balanced development respecting human dignity
Lasting Influence
Shaped Catholic social doctrine
Church advocacy for economic justice