Is This What They Mean By “Crack-Up Boom”?

by John Rubino

In 1980, the US government – along with pretty much all of its peers – began borrowing at an accelerating rate. Note on the following chart how the trend line steepened in the 2000s and then steepened again in 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. Note the 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:

U.S. Households Ramp Up Borrowing Led by Mortgages, Credit Cards

(Bloomberg) – U.S. households increased their borrowing in the final three months of 2016 at the fastest pace in three years, according to the Federal Reserve Bank of New York.Consumer debt rose by $226 billion, or 1.8 percent, in the fourth quarter, led by a $130 billion increase in mortgage loan balances and a $32 billion increase in credit-card borrowings, the New York Fed said Thursday. The rise brought total consumer debt to $12.58 trillion, just shy of the $12.68 trillion peak in the third quarter of 2008.

New mortgages originated totaled $617 billion, marking the biggest three months for volumes since the third quarter of 2007.

“Debt held by Americans is approaching its previous peak, yet its composition today is vastly different as the growth in balances has been driven by non-housing debt,” Wilbert van der Klaauw, a senior vice president at the New York Fed, said in a press release.

Student loan balances rose to a new record high of $1.31 trillion, and auto loan debt also increased to a record $1.16 trillion in the 18-year history of this data series.

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 answerable only in retrospect. But when the crack-up boom finally hits, this acceleration across multiple sectors is how it will look and feel.

 

 

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  • Nexusfast123

    A fiat money collapse will be epic. It is a classic crack up boom scenario as assets have bubbled while real incomes have gone into decline. At some point all the exuberance related to rising stocks, bonds, etc. will evaporate.

  • CharlesH

    I’m no financial genius by a long shot but just my common sense tells me everything is going to hit a brick wall and disintegrate very soon.

    • FreddyB

      Couldn’t agree more. The Fed with their rate hikes this year will spearhead the collapse. The Fed threatened to raise rates many times during the Obama admin but did it once, if memory serves me correctly, as they knew it would cause havoc and Obama didn’t want it done on his watch. Now that POTUS Trump is in they raised rates in Dec and I have zero doubt they will hold to their 3 more hikes during 2017 threat.
      While people are being distracted by the MSM circus stories of racial and other BS divisions the continuing Bad Russia stories, the economy is unraveling. This is going to blindside a lot of people and bleed a huge chunk of wealth out of the middle class, as is the plan.