The Critical Stage

Charles P. Kindleberger and Peter L. Bernstein

Chapter 6 in Manias, Panics and Crashes, 2000, pp 91-107 from Palgrave Macmillan

Abstract: Abstract In our model, displacement, euphoria, and distress are perhaps followed by panic, which is perhaps followed by crash. This is not very different from the pattern seen by Lord Overstone, the leading British banker of the middle of the nineteenth century, quoted with approval by Walter Bagehot: “quiescence, improvement, confidence, prosperity, excitement, overtrading, CONVULSION [sic], pressure, stagnation, ending again in quiescence.”1 The formula stretches euphoria into five stages that are difficult to sort out and puts pressure after, instead of before, the financial crisis itself (convulsion). If the order is altered, however, distress and pressure consist in a period in which the rosy expectations of boom are gradually or quickly undermined and give way to gloom.

Date: 2000
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DOI: 10.1057/9780230536753_6

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