The damage caused by the bursting of a bubble depends on the economic sectors involved, whether the extent of participation is widespread or localized, and to what extent debt fueled the investments that inflated the bubble. The term "bubble," in an economic context, generally refers to a situation where the price for something—an individual stock, a financial asset, or even an entire sector, market, or asset class—exceeds its fundamental value by a large margin. Because speculative demand, rather than intrinsic worth, fuels the inflated prices, the bubble eventually but inevitably pops and the massive selloffs cause prices to decline, often quite dramatically. In most cases, in fact, a speculative bubble is followed by a spectacular crash in the securities in question. The burst of the dotcom bubble in 2000 and the residential real estate bubble in 2008 led to severe recessions. Scholarly research helps me now to better understand the direction of the U.S. economy by reading and analyzing the consensus forecasts from a panel of academic, business, and financial economists.
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