In this way, U.S. stock valuations over the last year went from ridiculous to insane. Consumers and corporations borrowed almost a trillion dollars last year, of which half went into financial markets. This year mind-boggling increases in margin debt and record financial leveraging were piled on top of last years massive home refinancing and huge corporate borrowing. We paraphrase Mises. Business must restrict its activities.
Prices drop suddenly.
Factories close, construction projects are cancelled, workers are discharged, and consumption drops. The final outcome of the credit expansion is general impoverishment. The immense majority of people must foot the bill for the bad investments and overconsumption of the boom episode. This describes the onset of an ordinary recession. Dr. Kurt Richebacher suggests we could get much worse.