Between 2004 and 2007, the United States experienced a bubble that was driven by a self-reinforcing cycle of rising debt, strong growth and strong asset returns. Debts rose by 38% of GDP during the bubble to a pre-crisis peak of 349% of GDP. In this case, the debt was in the United States’s domestic currency, and the majority was owned domestically, too. During the bubble phase, investment inflows were moderately strong, averaging around 8% of GDP, which helped to finance a current account deficit of 6% of GDP. Aided by that rising debt and capital, growth was strong (at 3%), while levels of
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