> At some point, people realize that this paper is nothing more than a
> blank sheet of writing paper. The bubble may have stimulated some
> investment that is capable of producing real economic benefits, but
> mostly it has induced people to consume and commit themselves to pay
> back debts.
The passage above suggests that the problem is that people eventually realize the paper is worthless. What if everyone continued to agree that the paper was worth something? Would that really solve the economic problem?
I think it's more helpful to conceptualize the psychological factors (investor confidence, etc.) as the precipitate of material economic conditions, not vice versa.
Miles