The Crash Course, Revised Edition

CHAPTER 12The Great Credit Bubble

In order to understand what the future may hold, we need to see the excessive accumulation of debt between the early 1900s and 2020 for what it really was—an enormous and protracted credit bubble. Debt levels doubled, redoubled, and doubled again with uncanny mathematical precision. Within that larger credit bubble, we had several minibubbles—one in stocks, another in housing, and yet another in debt—and while these were all financially destructive, they were sideshows on the way to the main act.

Because our hopes and dreams for the future rest upon a well‐functioning economy, we need to understand what bubbles are and the financial risks they pose. If my analysis is correct, when the current debt bubble bursts we'll be lucky to avoid reverting to 13th century lifestyles and living conditions.

Like all credit bubbles, the current credit bubble is founded on the most enduring of human weaknesses: the desire to get something for nothing.

Before we dive into the Great Credit Bubble, let's spend a bit of time defining an asset bubble and examining some of its more common characteristics.

What Is a Bubble?

Along the continuum of irrational financial behavior, it can be tricky to tell the difference between a bubble, a mania, and a touch of overexuberance. The designation “bubble” is reserved for the height of folly, but unfortunately, history is rich with folly. Throughout the long sweep of history, as I'll demonstrate shortly, the bursting of ...