One reason is that there's a sharp rise in the amount of capital sloshing around the world in search of the best returns. Investors are still fixated on short-term gains over long-term performance. And information now travels instantly, fueling a herd mentality and feeding the optimism wired into our brains.
Bubbles feel good when they are inflating, but even that upside is not a replacement for slow-and-steady growth - the type of economy the United States mostly had for decades. The problem comes when the music stops and the wreckage spreads far beyond the assets that were inflated.
After the housing bubble popped, we are lucky to still have a functioning financial system. And because millions of working Americans now depend on 401(k) plans instead of pensions for their retirement savings, they are more vulnerable when the stock market plunges as it did last fall.
"It's not a matter of could it happen again; it's a matter of when," said Kenneth Rogoff, an economics professor at Harvard University and coauthor of a new book on bubbles called This Time Is Different: Eight Centuries of Financial Folly.
Reckless day traders and unqualified home buyers got blamed for the Internet stock bubble at the beginning of this decade and the still-deflating housing bubble. But they are just bit players in the story. The surge of global capital seeking the quickest and most profitable investments played a larger role.
Over the last 30 years, the value of financial assets - such as stocks, bonds, and bank deposits - grew to be four times larger than annual global gross domestic product. Key factors: personal savings rates rose in Asian economies, companies piled up profits year after year, and Middle Eastern oil-exporting countries grew wealthier.
