How does the speculation phase of a bubble impact the real economy?
Replied byRay Dalio
Founder at Bridgewater Associates
Niche: Finance
Revenue: Not Publicly Disclosed/month
Location: Westport, Connecticut, United States
Started: 1975
When asset prices go up, paper wealth increases. People borrow more money using their inflated assets as collateral, compounding the gains. When the bubble bursts, the process works in reverse: people must sell assets to pay debts, reducing spending and causing economic downturns like the Great Depression.
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