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Whether you invest in it or not, it’s worth your time to pay attention to news about the stock market. Latest reports say that the current bubble is going to burst soon, but what does that term really mean?
What’s A Market Bubble?
A market bubble happens when demand for a stock, or stocks in general, is so much higher than supply that the price gets ridiculously high.
With any other product, that wouldn’t be a big deal, but stocks are factored into the valuation (or dollar amount of worth) of huge corporations that play key roles in the economy and employ thousands of people.
Why Is It Bad?
What comes up must come down. When a bubble bursts and people come back to their senses, the price of stocks and the valuation of companies plummet. Corporations and individual investors lose money and the domino reaction of financial losses deals a heavy blow to the whole economy.
If a company loses money, it may fire employees, and then those people have no income to spend to support the economy. If an investor loses money, he or she will likely cut down on spending as well. If this happens to enough investors, businesses that rely on investors as customers could suffer and fire their employees, and it becomes a vicious circle.
What’s Happening Now?
Ron Paul, a retired politician, is making the rounds on economic talk shows proclaiming that there is a perfect storm of conditions that have resulted in the “biggest market bubble in mankind’s history.” To make matters worse, Paul also predicts the bubble will burst in a massive way.
Only time will tell what will actually happen, but informed consumers are able to make better decisions. Don’t put too much faith in the stock market, and always remember that while the economy can change rapidly, it usually recovers.