Jay Currie

So familiar is this pattern—described by the economic historian Charles Kindleberger—that it is possible to distill it into five stages:

(1) Displacement: Some change in economic circumstances creates new and profitable opportunities. (2) Euphoria, or overtrading: A feedback process sets in whereby expectation of rising profits leads to rapid growth in asset prices. (3) Mania, or bubble: The prospect of easy capital gains attracts first-time investors and swindlers eager to mulct them of their money. (4) Distress: The insiders discern that profits cannot possibly justify the now exorbitant price of the assets and begin to take profits by selling. (5) Revulsion, or discredit: As asset prices fall, the outsiders stampede for the exits, causing the bubble to burst.

The key point is that without easy credit creation a true bubble cannot occur. That is why so many bubbles have their origins in the sins of omission and commission of central banks. naill (er, niall) ferguson, vanity fair

I am just finishing Ferguson’s second volume on the Rothschild family. I’d already read his masterful account of the origins of the First World War. He understands what is happening in financial historical terms. The Vanity Fair article is worth reading all the way through....