The picture above is an artistic representation of Holland from 1634-1637. The monkeys represent the people in a frenzied state of mind over tulips, a new flower that the Dutch people had never seen before, which was then considered to be rare. They were so valuable that people conducted their commerce with the tulip bulbs instead of money. This artificial value of the tulip came from speculation that they were scarce. Some people made a fortune by selling their tulips, in which other people followed. The price began to dive and everyone realized that they sold everything they owned for just a flower. Panic set in; contracts weren't honored and sales didn't occur. This made restitution nearly impossible for those stuck with tulips. In one year's time, the price of a tulip went from being able to buy you a house to being worth the price of an onion.
This is one of the earliest examples of a bubble in the market in recorded history. The lesson to be learned here involves being wary of speculation. The Dutch people and the local media made the tulip a much bigger phenomenon than it was, which drove the purchase of tulips in the first place. While there was a profit to be made, the Dutch still wound up in a depressed market after the speculation ended. The U.S. is in the middle of a Bond bubble, due to the Federal Reserve's low interest rates, which will inevitably rise and cause a panic to sell-off bonds. This happened with the Dot Com bubble and the Real Estate bubble that put the U.S. into a recession. If you are a current or future investor, you should keep this story in mind when playing with the market. History has shown that this will eventually happen again.
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