By Tian Hui, Research Institute of Finance, Development Research Center of the State Council (DRC)

Report No 141, 2014 (Total 4640)

Abstract:

The United States has experienced two major asset bubbles in the Internet and real estate, both of which took place against a background of economic transition, with a decline in traditional manufacturing. The Internet bubble saw a great deal of capital flowing into technology and emerging enterprises, while the real estate bubble saw capital flow into real estate and financial market. The two bubbles that took place during the US economic transition were the joint result of the general situation, finance, and psychology.

After the bubble burst, some policy adjustment had an impact on US economic transformation. The American lesson can bring us a lot of valuable experience, for example, the asset bubbles could be seen as an inevitable process of trial and error in the economic transition, and maintaining balanced development in the real and virtual economy is the key. Also, China should not blindly pursue the wealth effect because it can increase fantasy and speculation, then drive irrational prosperity in the stock and housing markets.