Asset bubbles exist when market prices in some sectors increase over time and trade far higher than fundamentals would suggest. Expansion of the supply of money and credit in an economy provides the necessary fuel for bubbles.
It is very important to better understand asset bubbles. The biggest asset bubbles in recent history have been followed by deep recessions. The reverse is equally true: The largest and most high-profile economic crises in the U.S. have been preceded by asset bubbles.
The stock market bubble of the 1920s, the dot-com bubble of the 1990s, and the real estate bubble of the 2000s were asset bubbles followed by sharp economic downturns.
