Economists quarrel ferociously over the issue. Monetarists such as Congdon believe that the causes must lie outside the market itself. Excess liquidity is channelled by individuals into shares, and the 'wealth effect' then feeds into a consumer boom, which in this case is stoking, unusually, not inflation but a burgeoning trade deficit. US growth has got to slow down,' he says. New' economists like Ormerod believe that volatility is built into any complex system such as a market or economy where many different agents interact.
Bubbles are inherent in the way the system works.
Galbraith also sees bubbles as intrinsic, but the causes as psychological - the 'speculative orgy' that precedes the crash rather than the external events blamed afterwards. Galbraith declines to predict the final outcome of the current bull market, which he had expected to end last year. What must be borne in mind is that we have far more people acting and advising on the market, including mutual funds, than we have intelligence to run them,' Galbraith explains. The other sobering common denominator of crashes is that they bring rack and ruin to rash individuals and the real economy alike. After the Great Crash, for instance, US credit froze, manufacturing ground to a halt, and a near-decade of global depression was only ended by economic preparations for the Second World War.