On the geography of bubbles and financial crises

This chapter explores the geography of financial bubbles and financial crises. While bubbles and crises have erupted across the globe in the past several years, their spatial aspect has largely been ignored. While interest in bubbles has grown, stimulated by recent financial crises, economic and econometric analyses designed to interrogate them have de-spatialized any understanding of their characteristics by looking or commonalities across bubbles, in essence developing models in (abstract) space but not of (real, contextualized) space. Geographers, for their part, often assume that bubbles or crises are manifestations of the deeper forces generating capitalist crisis. We argue, to the contrary, that asset bubbles and crises cannot be reduced to epiphenomena; ‘placing’ them is the only way to fully grasp their causes and consequences. In integrated economies with developed divisions of labor and well-organized institutions for investment, lending, and saving, asset bubbles arise systematically: they are commonplace, not rare. We establish this argument on the basis of cross-border accounting balances. This way of understanding asset bubbles suggests that whether they are readily deflated or instead grow to problematic and unsustainable peaks depends on local market and income structures and on cross-border flows of all kinds. So understanding asset bubbles – and their role in the uneven growth of income, wealth, and debt – requires an examination of the geographic political economy which has generated (or moderated) them, thereby creating new layers of losers and winners in residents’, enterprises’, and financiers’ struggles for sustenance, security, and gain.