Tulipomania

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  • Topic: Economic bubble, Dot-com bubble, Tulip mania
  • Pages : 1 (379 words )
  • Download(s) : 16
  • Published : July 16, 2012
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Tulipomania was very similar to recent bubbles, the dot-com bubble from 2000 as well as the housing bubble of 2008. The dot-com bubble is much more comparable to Tulipomania, as both saw their boom and bust simply due to the highly speculative demand. The Dutch tulips had little to no real value but were being traded on the Amsterdam Exchange for outlandish prices. Why? Simply due to the confidence of the investors. It began with nothing more than a supply squeeze, as did the dot-com bubble. The squeezes caused prices to increase gradually, generating more and more interest as it grew. The more interest they gained, the quicker the prices climbed. Soon, neither the dot-com startups nor the tulips were being invested in for their actual values, but out of pure speculation that prices would keep rising. Eventually, everyone was dealing in these speculative markets boasting returns never before witnessed in their respective time periods. The United States housing bubble was also eerily similar, even being described as “Housing-mania” by some. The American dream has always been considered to own your own family home. The US government even had its hand in creating the bubble, with both the Clinton and Bush administrations passing laws to help Americans afford to own their own home. Just like the other two, there was a supply squeeze at the beginning. Newly affordable home loans created a high demand. The high demand brought in speculators who felt they could “flip” homes for large profits. This worked well until many of the sub-prime homeowners started defaulting on their payments. Soon after, confidence was lost. The demand dropped and supply was high. The effects were felt throughout the economy and were much worse than either of the bubbles mentioned before, though their causes were the same.

Speculative demand has proven to be the root cause of the bubbles and loss of confidence can be considered the cause of the bust. We should have grown...
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