“… in light of the ongoing interaction between markets and regulators it is quite misleading to study financial markets in isolation. Behind the invisible hand of the market lies the visible hand of politics. Instead of pursuing timeless laws and models we ought to study events in their time bound context.”- George Soros
George Soros has a really deep understanding of the modern world. His financial success (he's one of the few people on the planet to have made more than a billion dollars a year in more than one year), is seemingly rooted in a model of the world much broader than just financial markets.
Among other things, he believes that bubbles are as common as - perhaps even more common than - stable equlibriums. This sets him apart from most economists, but Soros argues that given how dependent market value is on perceptions, it is as easy to argue that prices (whether of gold or stocks or currency) are driven by perceptions as it is to argue that perceptions are driven by prices. In physics, causation flows from object to observer. A rock and a feather falling in a vacuum fall at the same speed whether or not you thought they would. By contrast, if society thinks that an ounce of gold (something "solid and real") is worth more than a share of Facebook (something "speculative and iffy"), than it will be. If, instead society thinks Facebook's ability to create profits is greater than that of an ounce of gold, than a share of Facebook may sell for more. Causation flows both ways when it comes to social realities. That is, sometimes underlying "real" value drives perceptions and sometimes perceptions drive "real" value or prices.
Soros studies bubbles and one fascinating point that Soros makes in a really illuminating speech about the nature of the euro crisis is that the European Union itself was a bubble, a political bubble.
I contend that the European Union itself is like a bubble. In the boom phase the EU was what the psychoanalyst David Tuckett calls a “fantastic object” – unreal but immensely attractive.
You can read the speech here. It will provoke you to think.