Very good article to share!!

This time is different.
      That’s what people argueevery time a bubble inflates, and what they think every time they arechastened by its popping. But century after century, decade afterdecade and year after year, human beings irrationally exuberate allover again.
Not long ago, the housing bubble burst and broughtthe global economy to a standstill. Now economists, recognizing thatbubbles tend to come in bunches, are on the lookout for the next marketto fizzle. They say that governments, central banks and internationalbodies should scrutinize a few markets that look likely to froth overin the next few years, like capital markets in China, commodities likegold and oil, and government bonds in heavily indebted countries likethe United States.
“Globally, a lot of money is now seekinghigher returns once again,” said Rachel Ziemba, senior analyst at RGEMonitor. The steadying of the economy, liquidity injections bygovernments and big returns reaped early this year by investment banksare encouraging more traders to dip their toes back in the water insearch of the next big thing.
“As long as compensation andbonuses are based on short-term performance in the market,” she said,“that’s going to encourage risk-seeking behavior.”
Bubbles are episodes of collective human madness —  euphoria over investments whose skyrocketing values are unsustainable.
Theytend to arise from perceptions of pending shortages (as happened lastyear, with the oil bubble); from glamorized new technologies orinvestment frontiers (like the dot-com bubble of the 1990s, the radiobubble of the 1920s or the multiple railroad bubbles of the 19thcentury); or from faddish cultural obsessions (like the Dutch tulipbubble of the 17th century, or the more recent Beanie Babies bubble).
Oftenthey are based on legitimate expectations of high growth that are“extrapolated into the stratosphere,” as the economist Daniel Yergin,chairman of IHS-Cambridge Energy Research Associates, put it. Such isthe fear over investment in emerging markets like China.
“I’m along-term bull on Asia, but right now it’s premature to be celebratingthe ‘Asian Century,’ like some investors seem to be doing,” saidStephen Roach, chairman of Morgan Stanley Asia.
TheShanghai Stock Exchange Composite Index, for example, nearly doubledfrom November to July before pulling back last month. “People seem tobelieve the baton of global economic leadership is being seamlesslypassed from the West to the East. That’s going to happen, but not foranother 5 to 10 years at least.”
Similarly premature excitementinflated what became known as the South Sea bubble, a 18th centurymania over British trade with emerging Latin American markets. (Aside:Even the brilliant Sir Isaac Newton,seduced by the mirage of infinitely rising stock prices, lost a lot inthe South Sea bubble — which is somewhat ironic, given his famousrecognition that what goes up must come down.)
Economists alsoworry that commodity bubbles, which tend to be more cyclical, maystrike again. Oil and gold prices are rising, and though both of thosecommodities have boomed and busted many times in the last century,investors may bet on unrealistically high growth once more. Goldprices, for example, have risen more than 30 percent from a year ago.
“Withevery commodity bubble, you see a whole new set of rationalizations,”Mr. Yergin said. “People find ways to shut out the reality of economicprocesses. If oil prices shoot up, investors are always surprised tosee demand go down again.”
In each of these markets, the inflation and deflationof prices would be painful to investors but may not have asfar-reaching consequences as the recent housing and credit collapses.
But a sovereign debt bubble — which many argue is driving the acceleration in gold prices — could prove far more dangerous.
Somany countries, like the United States, are running up such largenational debts as a percentage of their overall economies that theycould risk eventual default. Even without outright default on theirobligations, the value of government bonds sold to finance thesedeficits could plunge, costing investors a lot.
“Talk about a big bubble that really affects the global economy,” said Kenneth Rogoff, an economics professor at Harvard whose new book, “This Time Is Different,” chronicles 800 years of debt-driven financial crises.
“Thehuge run-up in government debt has led to patently unsustainable fiscalpolicies across a number of major countries,” he said. “So far, therest of the world’s been willing to finance it, primarily with savingsfrom China and elsewhere, but if investors’ confidence is shaken, wemight see the interest rates on long-term debt rising, and rising verysharply.”
Debt crises are usually associated with developingcountries, like Brazil, Argentina or Zimbabwe. But they can affect big,rich economies too, where the scale of global damage can be muchgreater.
“Look at California,” Mr. Rogoff said. “It’s incrediblyrich, but Californians want a lot of services but don’t feel liketaxing themselves to pay for them. You can be incredibly rich and stillgo bankrupt.”
The depth and breadth of the pain unleashed by therecent housing bust have led political leaders and central bankers toreconsider their duties to pre-empt, rather than just respond to,potential bubbles, and the same is true with the potential bubbles thateconomists foresee today.
China has started to tighten monetarypolicy to rein in the hype surrounding its equities. Politicians in theUnited States, while torn over the means, are discussing ways to bringthe deficit until control.
The Group of 20,at its coming meeting in Pittsburgh, is expected to address ways tocalm financial frenzies. The solution may involve additionalregulation, guidelines for financial compensation and possiblyrequirements for more market transparency so that, at least in theory,investors can better judge what they are taking on.
But howeverstringent such new regulations may be, economists say, they cannotcompletely defeat human nature. Investors will continue to behypnotized by get-rich-quick deals, seeking investments that magicallydouble, double without toil or trouble.
“Ultimately, bubblesare a human phenomenon,” said Robert Shiller, a Yale economicsprofessor and Cassandra of the current crisis. “People just get alittle crazy.”