The last major spike in reported margin leverage was just before the 2008-09 meltdown. This time around market leverage--debt used to buy securities--is at "WTF" levels. Cheap money from the FED is fueling the buying spree, while it simultaneously issues "chicken little" warnings of over-leveraging leading to collapse like the one the private hedge fund, Archegos, experienced. As a private office, no one knew--including its creditors--how much leverage Archegos was applying until it imploded. Here is what the FED said: “The episode highlights the potential for material distress at NBFIs [Nonbank Financial Institutions such as hedge funds] to affect the broader financial system,” A polite way of saying excess leverage drives up prices until they cannot be supported any longer by frantic buying. When prices stall at the top, exit selling begins and entire market decline accelerates. It is not only Wall Street that is using more debt. This chart shows the average US household debt categories. Total household debt has doubled since 2003 despite some credit card pay down occurring during the pandemic:
