Is This What They Mean By “Crack-Up Boom”?
In 1980, the US government, along with almost all of its peers, began borrowing at an accelerated rate. The trend line steepened in the 2000s, and then steepened again this decade, with a sudden and unexpected pop in 2015 and early 2016, even as the current recovery entered its 8th year.
Also in the past year, stock prices have risen from near-record, overvalued-by-every-historical-measure levels, to new record, grossly overvalued levels, and show no signs of slowing down. There has been a massive jump in S&P 500 trading volume that began in January and has persisted throughout the year.
Investors, meanwhile, are borrowing to snag more of those apparently easy profits, with margin debt (money borrowed against stock portfolios to buy more shares) now above both 1999 and 2007 levels. And now consumers are joining the party.
This is clearly a credit-driven boom of some sort. But is it the long-awaited Austrian School of Economics crack-up boom, the exclamation point at the end of especially frenzied and broad-based financial bubbles? That may be a question that can only be answered in retrospect. But when the crack-up boom finally hits, this acceleration across multiple sectors is how it will look and feel.