Credit Is The Lethal Ingredient In An Asset Bubble

One of the lessons of the financial crisis was that a credit-fueled asset bubble, what we now know as a Minsky moment, can wreak havoc on a seemingly stable economy. But to the extent that today’s conventional wisdom can make sense of the Great Recession, the conventional wisdom in 2006 seemed just as reasonable at the time. The problem is that asset bubbles are rare events, so it’s difficult to get enough data to back up any point of view. That why the recent paper “Leveraged Bubbles” by Oscar Jorda, Moritz Schularick and Alan Taylor is so important. It brings…