The current economic expansion is now in its tenth year and is the second longest in history at 36 quarters and counting. We have another year or so to go before this unprecedented period of expansion overtakes the current leader. The run into the 1999/2000 technology bubble and subsequent bust lasted 40 quarters, a full decade of uninterrupted real GDP growth. While the duration of this boom has been unparalleled, its strength has been less impressive. Cumulative growth over the last 9 years has amounted to just 22%, about half that experienced in prior booms of similar duration. Mounting government, corporate and household debt have curtailed spending and lowered the marginal propensity to consume.
Interest rates are now on the rise at a time when government, corporate and household debts are at record highs. Central banks are trying to thread the needle, raising short-term rates just enough to tame the inflationary pressures that are building but not too much as to prick the 'everything bubble'. They are behind the curve but afraid to move too quickly. It will be fascinating to see how this game plays out.
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