![]() Related Researcher believes bitcoin may become as important as the internet But that’s a bigger discussion,” said Rime, who has become involved in the national debate over bitcoin. Also, bitcoin is both expensive and slow. When asked if this doesn’t apply to the transfer of money overall, and that his belief in Norwegian currency as opposed to bitcoin is like doubting the value of sailboats when motorboats arrived, Rime replies that we already have the ships we need. “Bitcoin is only a transaction service, and more and more studies indicate that it can be considered a bubble,” Rime said. He believes this approach can be used in services we may need and thus will be willing to pay for. That doesn't mean he rejects blockchain altogether. Any price above zero is roughly a bubble,” Rime said. We have money, and bitcoin provides services we don't need. He himself has a clear example of a bubble that is fully burst. In other words, a share's value can grow if there is a steady flow of optimists who think that there will be new potential purchasers, Rime said. It sends a signal that the share is better than it really is,” Rime said. It’s not good for a share to be overpriced. But economists want the market to work perfectly. This avoids ‘contagion sales’ and large sales waves, which have big, precipitous effects. The authorities, for their part, think it’s fine. “The seeds of bubbles lie in speculators not being given the opportunity to sell and thereby correct the price. That’s one of the reasons why economists often want regulations that limit shorting, Rime said. Then the price can’t be pushed down,” Rime said. You cannot sell a share that someone has shorted. “If we have a bubble, speculators will start selling, but if many people short the stock, many shares are frozen. Shorting is borrowing a share from other owners and betting that the share price will fall. That's where short sellers come in,” he said. There have to be some counterweights that prevent speculators from selling and thus correcting the rate. “Nevertheless, this really isn’t going to work. Rime brings up John Maynard Keynes, who called this selling to ‘the greater fool’. The economists' answer is that bubbles exist because someone is willing to pay more than the fundamental value, because they are not only interested in dividends, but they think they can sell to a bigger optimist later. “It is enough for a few people to be rational, because they will normally play a corrective role,” he says. The answer is not that people are stupid. It goes against basic economic theory,” Rime admits. For us, it’s demanding to explain why there are bubbles at all, which continue to persist and have not been punctured. “As economists, we ask ourselves: Why is there no pressure to sell and push the price down? As Milton Friedman says: If something is overpriced, speculators will push prices down, or up, if something is priced too cheaply. It is difficult to understand why there might be a particularly higher price than the underlying value of the stock, because normally when prices rise, it triggers sales as people cash in. how to deal with the crash -because it must come.Ī market is basically in equilibrium, with competition between the actors. Since bubbles in a market should actually disappear by themselves, economists have three challenges: For shares, this is typically a dividend, which is called the fundamental value. Securities such as shares get their value from the cash flows that can naturally be expected in the future. But how could this happen?ĭagfinn Rime at BI Norwegian Business School will explain to us what financial bubbles really are.įirst off, he’ll explain why bubbles don't develop and in any case why they don't last. This incredible story has since been regularly repeated around the world. Even the famous scientist Isaac Newton lost 20,000 pounds. The apocryphal tree did not keep growing into the sky. The value rose in June to £880 and £1,000 in early August. But the value of the South Sea Company only increased. ![]() In June 1720, the British Parliament had to introduce The Bubble Act to stop other bubbles. Others copied the idea of pumping up expectations in their companies. The stock rose from £128 in January 2020 to £330 in March and £550 at the end of May. Belief in everything they were going to achieve triggered fierce speculation. In 1719, the owners set in motion a wonderful flood of rumours. ![]() Three hundred years ago, the Briton Robert Harley was given the exclusive right to trade in South America through the South Sea Company.
0 Comments
Leave a Reply. |