The BIS uses the credit-to-GDP ratio as an early warning indicator of financial excess. It clearly showed extremes before the GFC. You can also see the explosion of credit after the Great Pandemic, which was a man-made surprise. Currently, the private credit-to-GDP ratio looks tame, although there is a clear movement to higher levels.
The story looks very different when we look at public credit-to-GDP. The public debt usually spikes after a market peak as fiscal policy kicks in to support the economy. The public debt is increasing but not at levels that seem excessive, yet there has never been a reversal of the Pandemic extremes.
What is most interesting is when we difference the private and public change as a percentage of GDP. There is a large secular change in the composition of debt from private to public. The issue with this switch is whether the government can afford its spending. Get ready to pay through more taxes or through a debasement of the debt.
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