But we can think of these dynamics as being superimposed on the longer-term forces that I’ve already described. Even though these forces might be conceptually distinct, they are in practice likely to be highly interconnected. A financial bubble doesn’t usually come out of nowhere.
Typically it starts as a well-based reaction to some genuinely new event, but then develops a selffulfilling momentum of its own, often with elements of irresponsibility, dishonesty and outright fraud as part of the mix. Globally, there were certainly elements of bubble-like behaviour in the few years leading up to the GFC.