What do we know about financial bubbles?
📈They tend to emerge around technological innovation. Railroads in 1800s, internet in 90s or credit instruments in 2000s. Uncertainty around new tech leads to speculation.
⬇️Bubble consequences are most severe when powered by debt. It is less linked to the type of asset and depends more on leverage.
📊Financial sector in the US is less leveraged today. $15.7 trillion compared to $18 trillion in 2008.
❕However, ratio of non-financial borrowing to output was higher last year than in 2007. Credit to output in China is 258% in 2016 compared to 145% in 2007.