The "Mathematical Equation" Of Asset Bubbles

Just when you thought the central planners had everything squared away in a tidy little package (the jobless rate is rising? Sell vol. Not enough iPhone 77.25S are being sold? Sell vol. Ben Bernanke's voice is shaking? Sell more vol. The Russell 2000 is up only 1%? Dump all the vol!), here comes the Harvard-based NBER ( the same people who determine the start and end of recessions), in conjunction with those economic wizards from Princeton, with what is actually an interesting paper discussing the nature of debt (as opposed to equity) bubbles, i.e., "Quiet Bubbles." In the paper, the authors postulate the following about credit bubbles (an issue that is obviously quite sensitive in a day and age when central banks are responsible for the gross monetization of some 80-100% of government debt/deficits): "greater optimism leads to less speculative trading as investors view the debt ...