The Debt Balloon

Analogies both tempt and mislead. Still, it is hard to avoid recalling the merry 1920s, the last occasion when international and domestic credit stimulated pundits to project endless prosperity premised upon ever-rising stock prices. Roger Babson saluted Hoover’s victory in 1928 as a veritable warranty of good times as far as the prophetic eye could see. In retrospect, it’s quite clear what first inflated and then pricked the credit bubble. The Versailles peace treaty imposed upon defeated Germany an enormous reparations burden. As Keynes memorably warned in his classic polemic The Economic Consequences of the Peace, protectionist barriers to German exports, loss of Lorraine’s iron to France and Silesia’s c...