Do You Know the Definition of a Market Bubble?
Do you know the definition of a market bubble? If so, count yourself among the few because like the author of this particular article which was originally posted in The Atlantic, most people genuinely have difficulty grasping what an economic bubble truly represents.
Here’s the link:
So I’m posting NOT because I want to make an example out of the author but instead only because CLEARLY there are a lot of people confused about the definition of a market bubble, ESPECIALLY journalists who may even be well-meaning.
Let me help. While this is certainly an interesting article, I’d like to contribute by noting that the article never actually addresses specifically why the student loan debt crisis is dissimilar from a price bubble. It only notes that one bank is getting out of the student loan making business. That’s only a supply side of the equation, which doesn’t address the issue. A market bubble is trade in high volumes at prices that are considerably at variance with intrinsic values. It’s when the asset price appears to be based on implausible or inconsistent views about the future. Ultimately that’s precisely what students are beginning to figure out with the irrational price of higher education. The bubble bursts when consumers either stop buying, or stop paying, and the market systemically corrects.