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We saw that recently with a sudden change in oversupply excess demand devastating the economy. The effects of overpaying for raw materials led to the current economic woes, the tech bubble a few years ago, and catastrophic economic events of 1929, the bursting economic bubble goes back more than you might think, as the following events.
Tulip Economics
Prices skyrocketed in demand in the future, the product soared (demand inflexible economic “talks”). Product tulips and momentum in demand as a giant tsunami is growing exponentially. Various derivatives contracts taken out of the future plant of the beautiful tulips and bulbs.
tulips, known not fast growers; takes seven years to grow flowering plants bulbs or seeds, however, are the rarest tulips, multicolored varieties only grow in a light bulb. The multi-colored tulips was therefore highly sought after, much more than this red, yellow and other colored one namesakes.
mad Demand
The escalating prices as a result of the classic supply and demand economics. Supply is fixed, the extra time needed to grow the product, while demand has increased due to fortunes made. The fortunes are made mostly because of the speculative nature of future contracts. Tulips, product, seasonal and available only in a physical transfer of ownership in a few short months each year. As the demand was high, and rising, contracts can be sold for a higher price than the purchase price of the product itself. The contracts were traded and ultimately a product of their own accord, and in line with prices booming demand.
Economic History Repeated
As we have seen in recent times, when demand was affected by financial or becomes scarce, the market will collapse. This is exactly what happened in the Tulip market; Demand fell very quickly and tulips holders of the contracts were not able to sell the contracts, which they had bought much more than the product is worth it. The economic effects were devastating and widespread.
The above events four centuries ago, in February 1637, to be exact. The event became known as the “tulip mania”, and as a result of the near collapse of the Dutch economy, which started Tulip Mania.
Is not it strange that he was still surprised when the result of excessive speculation collapsed economies! Excessive overpayments and overpriced commercial products called bubble. Bubbles burst!
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Source by Gary Eckstein