During a boom, everything seems to work. Factories run extra shifts, unemployment falls, and new buildings sprout on every corner. Consumers feel confident enough to buy cars and houses. Businesses borrow to expand because the future looks bright. The mood is contagious, and that is exactly the problem.

Booms do not last forever, and the seeds of the next downturn are often planted during the good times. Cheap credit encourages risky bets. Prices for assets like stocks and real estate climb faster than incomes. Eventually, something snaps. A bubble bursts, a major employer fails, or a central bank raises rates to cool things down. The boom gives way to a bust.

Not every expansion is dangerous. A steady, moderate boom can lift millions out of poverty and fund useful infrastructure. The trouble comes when growth is fueled by debt and speculation rather than productivity. Telling the difference in real time is hard, which is why policymakers often miss it.

Signs of a boom

• Rising employment and wages
• Heavy borrowing by firms and households
• Soaring asset prices
• Optimistic business surveys
• Construction cranes on every skyline