The Bubble Economy

The period of very low real interest rates has been conducive to asset price bubbles (equities, real estate, corporate value, but also cryptocurrencies, metaverse assets, etc.). But today’s rapid rise in real interest rates could burst all these bubbles. It is then necessary to understand that: When bubbles develop, an increasing share of savings are used to buy bubble assets and not productive capital, and potential growth is therefore reduced; When bubbles burst, wealth is destroyed for asset owners, who are normally older households; this leads to a decline in their consumption.