Crack-Up Boom
Categories: Derivatives, Stocks, Trading
You laugh so hard that you...explode.
Boy, those Tyler Perry movies sure are funny.
In finance, however, a crack-up boom is a terrifying event where inflation accelerates to the point that it destroys an economy due to a rampant acceleration of asset prices, and an ensuing asset bubble collapse.
It goes badly. Like this:
Central loosens monetary operations, and the financial system experiences a surge of credit expansion. As a result, consumer prices push into overdrive at an increasing pace that can't be sustained over the long term. Naturally, banks will try to prevent the crack-up by reducing access to credit. The price bubble fueled by loose credit quickly pops, causing a significant economic downturn.
That final part of the story is the “boom.”