Bubble economy refers to the rapid expansion of the prices of long-term assets such as stocks and real estate caused by the excessive expansion of virtual economy, which is a false prosperity phenomenon of the whole economy formed by the growth rate of virtual economy exceeding that of real economy. Its formation process is that one or a series of assets suddenly increase in price in a continuous process, and the expectation of price increase attracts a large number of new buyers. These new buyers generally only want to get the difference and profit through speculation, but are not interested in the actual use value or profitability of the assets they buy and sell; Due to the continuous involvement of new buyers, prices are rising, forming a bubble economy phenomenon; Once the expectation of price increase is reversed, the price plummets and the bubble bursts, it will trigger a financial crisis and lead to the whole economic recession.

Example:

Famous cases of bubble economy in history include tulip bubble 1636 in the Netherlands, Mississippi bubble 179 1- 1720 in Paris, south sea bubble in London, etc. Typical cases of bubble economy in recent years include financial crises in Latin America, Southeast Asia and Japan. Take the United States as an example: the cooling of the construction industry is the last step in the decline of the housing market. Because the cost of land purchase by developers is sunk cost, the construction boom usually lasts until there is an obvious surplus of houses for sale in the real estate cycle. This is the case in the United States at present. By mid-2006, construction activity was still strong. However, once this last strength is exhausted, the construction industry will begin to decline. Judging from the current vacant housing market in the United States, the decline of the construction industry will be serious and long-the decline will reach at least 25% and last for several years. In the past three years, the contribution of the construction industry to the average annual growth rate of real GDP in the United States was 0.5 percentage points, and the contribution in the next few years may drop to-1.0 percentage points. In other words, this factor alone will reduce the economic growth rate of the United States by about 1.5 percentage points. Of course, the impact of the bursting of the housing bubble on American economic growth is not limited to the construction industry, and the wealth effect of the bubble can not be ignored. Since the emergence of asset economy in the United States from 65438 to 0995, the cumulative increase of residents' actual disposable income only accounts for 85% of the cumulative increase of consumption expenditure, and the gap between them is filled by the wealth effect produced by the asset bubble. First, the stock bubble, and then the real estate bubble. Especially the latter, its wealth effect has played a huge supporting role in consumer demand in recent years. From 2004 to 2005, the real consumption of residents increased by 3.7% annually, while the real disposable income of individuals only increased by 2.4% annually. At the same time, the value of real estate in the United States continues to expand, supporting consumers to extract purchasing power from it. According to the Federal Reserve's estimation, in the first half of 2006, the value of mortgage assets extracted by residents exceeded 700 billion US dollars at an annual rate, which was enough to effectively stimulate consumer demand. In the past five years, this wealth effect has contributed at least 0.5 percentage points to the annual growth rate of consumer demand with the rise of housing prices. However, if house prices stabilize or fall, the contribution of housing wealth effect to consumption growth will quickly drop to zero, and if American residents start to increase their savings again, their contribution will even drop to negative value.