Other bubbles in the history: The Tulip bubble

Currently, many countries face same major bubbles which are real estate and stock market. However, in the history, there was one plant that made the financial bubbles which called Tulip. In 1593, Tulips was sent from Turkey to Netherlands. It became a craze among aristocrats within a few years. Soon after, the Tulip became an object of speculation in the market. Individuals kept bidding up the price of bulbs. However, they were never seen by their purchasers. It became a major business that buying and selling contracts for Tulip bulbs in itself.

The rate of increase in the price was decrease. This can be understood that stocks for companies that have never made a profit. A single bulb was sold for $525 in 1623. The price was increasing at $1575 in 1625. Eventually, three such bulbs can be sold for $16,000 in 1637. How crazy about this price? In the same year, the average annual Dutch income just had $79.


The collapse happened in February 1637. Many individuals who invested Tulip were bankrupted. Even some middle class people did not have money for survival. Click here to watch cartoon Tulip Bubble explanation

The crash

It was focused on the country’s growing asset bubbles by Japanese officials in 1989. And the Bank of Japan changed its policy which tightened monetary policy. Soon after, it plunged from approximately 39,000 to 20,000 in Nikkei Stock that was nearly 50% decrease. This imploding stock bubble affected real estate bubble. The Zaitech-in-reverse caused the Japan into deeply financial crisis. This financial crisis was similar disaster with war.


Japan started the edge which called “Lost Decades”. This means that deflating stock and property prices during the 1990s and 2000s. Government was frequently helping many unprofitable and debt-ridden companies during this time. The residential real estate was only worth 10% of its late 1980s peak in Tokyo in 2004. Nowadays, the Nikkei stock index is around 15,000 which just achieve half of the peak point. 

Creating bubbles

As last blog mentioned, Japan had great booming export economy after war. The strict fiscal policies encouraged household to save money. Thus, in this case, Japanese banks had much cash surplus. Eventually, the banking system led to more lenient lending. Japan signed the Plaza Accord in 1985, which tried to weaken the U.S. dollar against the Yen. Japan had healthy trade surpluses. Therefore, Plaza Accord made Yen currency to appreciate against other currencies which decreased Japanese export trading. Meanwhile, it made foreign capital investments relatively inexpensive for Japanese companies. 

Japan became the second largest economy in just a few decades due to the combination of excess liquidity, financial deregulation and the country’s export miracle. This led to overconfidence and over-exuberance. Japanese started to invest other countries, for instance U.S. Nearly $40 billion was invested in risky leveraged buyouts in the USA. Mitsubishi Company bought 51% shares Rockefeller Center. Sony Company acquired Columbia Pictures of Hollywood. Click here watch short video News

In the mid-to-late 1980s, Japan domestic stocks and real estate had aggressive speculation due to overconfidence and loose monetary policy. It pushed the prices of these assets to previously unimaginable level. Japan’s Nikkei stock index achieved 39,000 in 1989, which accounted for more than one third of the world’s stock market capitalization. It played a significant role in boosting stock prices that the keiretsu conglomerates cross-holding each other’s shares. This caused Japanese firm wealth to balloon along with stock prices. Moreover, a majority of Japanese firms practiced “zaitech” ( or called “financial engineering”). Zaitech means that speculative profits and capital gains are reported as income on corporate financial statements. Zaitech-practicing corporations gained low-interest loans and used them to buy stocks and real estate. Obviously, the firms obtained enormous earnings at that moment. In 1989, one survey showed that many people did not believe that the Nikkei was overvalued.

Real estate prices had similar manic action. In Tokyo, the price raised 350 times, which had more expensive than comparable land in Manhattan, New York. 

It was generated astounding amounts of bubble wealth by soaring stock and real estate prices. Some firms or individuals started to invest art market. Western art was more attractive to them. They made new record prices in the art market. In 1987, Vincent van Gogh’s “Sunflowers” was paid almost $40 million by a Japanese insurance company. Ryoei Saito, a paper industry billionaire, paid $82.5 million for another painting of van Gogh, “Dr. Gachet”, which broke the price record.

Post war in Japan

After the Second World War, the U.S.’ Marshall Plan provided aid to rebuild Japan’s economy. Meanwhile, two countries’ improving relationship created an opportunity for Japan to export manufactured products to the increasingly-affluent United States.

Japanese industry have enough competitive to Western countries due to copying Western products. They improve their products’ quality and sell the products back to the West for cheaper prices. In Japan, it has lack of natural resources. Thus, Japanese companies made their effort on developing innovative and efficient manufacturing methods, which created their products in high value, for instance cars and electronics. Japanese industry started to use of assembly-line robots in automobile manufacturing in the late 1970s. This made human error nonexistent and boosted overall quality, while the U.S. industry was still assembling products by hand. 

Japan extended its domination to the global electronics industry as it produced the majority of the world’s consumer electronics products between the 1970s and 1980s. Moreover, it introduced innovative and revolutionary new products, for example pocket transistor radio and Sony Walkman. Japanese electronics producers also manufactured computer hardware industry which included semiconductor chips, circuit boards and other computer components. However, the CPU chip production was still dominated by American companies. In the 1980s, many people believed that Japanese companies will become “King of the Global Electronics Industry”.

Aforementioned cases, it was just part of successful industry in Japan at that time. In short, we can say that Japan developed significantly on their economics after Second World War. This economic miracle caused Japan standard of living to soar to among the highest in the world. By the 1980s, Japan became the world’s largest creditor nation and the GDP surpassed many Western countries.