The term “irrational exuberance” derives from words that Alan Greenspan, then chairman of the Federal Reserve used in a black-tie dinner speech in 1996. Fourteen pages into this speech, he posed a rhetorical question: “But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions ……………………..?”
Immediately after he said this, stock markets worldwide tumbled in value.
The term irrational exuberance became Greenspan’s most famous quote, out of all the millions of words he had uttered publicly and the term is now often used to describe a heightened state of speculative fever. I have chosen this phrase as the title for my post because many people will know instantly from this title what this post will be about. (more…)