Warning Sign Patterns

Crashes telegraph their approach through recognizable patterns. Rapid credit expansion, falling lending standards, and rising leverage ratios all flash warnings. Before 2008, US household debt climbed to about 130% of disposable income. Before the dot-com crash, companies with no revenue reached billion-dollar valuations. The warning signs are always visible — and always ignored.

The challenge is that warnings can persist for years before the crash arrives. Predicting that a crash will happen is relatively easy. Predicting when it will happen is nearly impossible, which is why warnings are so often dismissed as crying wolf.