The “crack-up boom,” a concept introduced by economist Ludwig von Mises, describes how extended periods of credit expansion can ultimately lead to a loss of confidence in currency rather than a typical deflationary reset.
This paper explores how current global macro conditions are increasingly aligned with that framework. Government debt across the G7 has reached elevated levels, with six of seven countries now exceeding 100% debt-to-GDP. At the same time, rising interest expenses are taking up a larger share of government revenues, reflecting growing pressure on sovereign balance sheets and refinancing cycles.
As debt levels increase and a meaningful portion of sovereign obligations comes due in the near term, policymakers face tighter constraints. Central banks must balance inflation control with the risk that higher rates could destabilize government finances, reinforcing the link between monetary policy and fiscal sustainability.
The paper outlines the structural implications for markets, including the persistence of negative real interest rates, the use of financial repression to manage debt burdens, and the potential for capital to shift toward real assets as confidence in monetary systems is tested.