The US stock market reaches historic risk levels: leverage far exceeds the Internet bubble era

According to recent reports, the financial situation on the US exchange is sending alarming warning signals. Data from December 21 shows that margin debt – the amount investors borrow from brokerage firms to expand their positions – has reached a new record of $1.21 trillion. More notably, over the past 7 months, this figure has increased by $364 billion, a 43% rise.

Adjusted for inflation, margin debt still increased by 32% compared to the same period last year, indicating that leverage usage is at an unprecedented level. In November alone, there was a $30 billion increase, reflecting extreme speculative market sentiment.

The most concerning indicator is the ratio of margin debt to M2 money supply, which has now exceeded 5.5%, a record high since 2007. This not only far surpasses the peak during the 2007-2008 financial crisis but is also higher than during the 2000 Internet bubble, a period when the financial system was severely damaged.

To understand better, margin debt is a tool that helps investors amplify their purchasing power with limited capital. By borrowing from brokerage firms, traders can achieve higher profits. However, at the same time, risks are proportionally amplified. When the market suddenly reverses, highly leveraged investors will face devastating losses, potentially exceeding their entire initial capital.

The current M2 money supply growth does not match the increase in margin debt, creating a dangerous gap. This situation recalls the darkest moments in stock market history when investors lost control and the financial system was strained to the brink of collapse. Currently, with leverage levels far beyond historical precedents, the market is hanging on a very thin wire.