1 - Economic bubbles should be prevented from evolving into bubble economies

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A bubble economy is an economic phenomenon in which the excessive growth of virtual capital and related transactions are increasingly divorced from the development of physical capital and the growth of the industrial sector, property prices are soaring, and speculative transactions are highly active. 


A bubble is a state where the prices of assets, such as stocks and real estate, deviate from their values. 


Source: Will Kenton - Investopedia

Bubbles emerge during economic transition because the inertia of the high-growth period of thinking drives all kinds of subjects to allocate a large amount of capital to the field of short-term value-added assets. A moderate productive bubble triggers a concentration of resources in new technologies, industries, and business models, which is conducive to promoting innovation. A speculative bubble, caused purely by speculation in the trading market, sends the wrong price signals to factors such as labor, land, and capital and is not conducive to economic transformation. In an economy full of speculative bubbles, market players prefer to invest in high-risk, high-yield assets, and normal investment and innovation activities in the real economy are severely inhibited, resulting in the hollowing out of industries and the virtualization of assets. Many countries, including China, are already showing signs of speculative bubbles. 

A bubble economy is characterized by speculation, resulting in a false socio-economic boom bound to burst, leading to social unrest and even economic collapse. Therefore, economic bubbles should be avoided from turning into bubble economies.

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2 - The bubble bursts: what does history's experience tell us? (1)

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The inflation and bursting of bubble economies is a recurring phenomenon in the world's economic history. Although the causes, timing and size of bubble economies and their impact on society vary, they all end tragically, and in some cases with great economic and financial disaster. The literature on bubbles is extensive. However, there is no systematic response to how all previous bubbles burst. Today's markets, with their growing optimism, make it particularly important to discuss this topic in depth. From the 17th to the 19th century, there were three famous bubbles: the Dutch Tulip Bubble of 1635 to 1637 , the BritishSouth Sea Bubble of 1720 and the Great Railway Madness of 1844 to 1846 . In the case of these bubble economies, interest rate volatility was a key catalyst for the asset market boom and subsequent collapse. Source:  Gareth Campbell: "The railway mania: Not so great expectations?" Asset bubbles have emerged more frequently in recent decades, wi...
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4 - Countermeasures against bubble economies——Take China as an example

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All bubbles cannot escape bursting. At the moment, China has excessive asset expectations and an overextended supply of credit . Whether this bubble bursts consciously on its own, or unconsciously and suddenly and violently, will determine the fate of China's economy in terms of a hard landing. After analysis, I believe that the main countermeasures to prevent a bubble economy are. (1) Establish a financial early warning system . In the face of huge unknown risks, a better countermeasure is to set up an early warning system to anticipate the occurrence of risks and prevent them early. (2) Strengthen financial supervision and enhance international cooperation in financial supervision. (3) Improve the use of monetary policy . In today's global recession, we need to increase monetary investment to boost China's economy through investment, but we also need to pay close attention to the timing and amount of monetary investment to prevent it from creating a new economic bubble ...
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