History tells us that we are in a strong bull market.

Although the US Federal Reserve decided to hold interest rates at its November meeting, they remain at their highest level since before the 2008-09 global financial crisis (GFC). The federal funds rate is 5.25-5.5%, similar to the United Kingdom's 5.25%, and the European Union's highest rate of 4%.

This is driven by high inflation, which remains stuck throughout the developed western world. It's so sticky that some, including The Citadel's Ken Griffin, are predicting it will last a decade or more. As such, central banks are contemplating longer-term higher rates.

This is a marked change from what has been the norm for the past 15 years: ultra-low interest rates facilitated by endless cycles of government, corporate and individual credit. This constant flow of money led to a strong and consistent rally following the GFC, and kept equity markets on life support during the worst global health crisis in more than 100 years.

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So investors are worried about what the end of this regime might look like, and they should be. If history teaches us anything, it's that capitalism is a game of boom and bust. And now, we're at the beginning of a new cycle.

While many of us look straight back to 2008 to understand our current situation, it's useful to look back a bit. In the year Between 1993 and 1995, U.S. interest rates fell after the 1989 flash crash, high inflation and tensions in the Middle East put pressure on the world's largest economy. In response, the Federal Reserve raised interest rates from 3 percent in 1993 to 6 percent in 1995.

Far from harming the US or its Western trading partners, however, that rise signaled the start of a remarkable period of growth. In the year Between 1995 and 1999, the S&P 500 tripled in value, while the NASDAQ Composite Index grew by an astounding 800%.

This era of globalization, innovation and optimism has led to the creation of the Internet, the backbone of not only the global economy, but all human life on the planet. This did not last, however, and in October 2002, the dot.com bubble burst and NASDAQ lost all of its gains.

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Today, against a backdrop of rising tensions in Europe and the Middle East, we are emerging from a brutal period of high inflation and high interest rates. Similarly, despite what has happened since the Covid-19 pandemic, the economy is doing remarkably well.

We can draw parallels between the dot-com boom and crypto. January will almost certainly spell one or more US Bitcoin spot ETF approvals, pushing huge waves of money into this relatively new asset class. This could trigger a wave of IPO activity inside and outside the industry, as it did in 1999, which could eventually escalate.

While we can draw some comparisons to the 1990s, there is one critical factor that brings us closer to the market cycle of 2001 to 2007: debt. As we all know – thanks to Margot Robbie for explaining it in Bubble Bath – 2001-07 saw one of the most reckless periods of credit and then trading on credit. As a result, the world has changed.

Today, we are witnessing the horrors of 2008, when U.S. home debt peaked in 2008 and credit card delinquency rates rose at the fastest rate since 1991. American consumers have opted for so-called “revenge spending” instead of tightening their belts. After being locked in their house for two years, it is taking a heavy toll.

A reversal of this credit trend may not bring the global banking system down like it did in 2008. But it is important to the health of the US economy, which is currently driven by the US consumer. And the higher interest rates, the more pressure there can be as those debts pile up.

The consumer has borrowed more than he can afford.

The default rate on credit cards from small lenders has risen to 7.51%

This is the highest level ever seen.

Even higher than the dot com bubble and the financial crisis

Credit card interest rates are still up… pic.twitter.com/dSX9cXicYE

— Game of Trade (@GameofTrades_) November 11, 2023

And of course, it's not just American consumers who are piling on the debt to tackle the 10-ton elephant in the room. Thanks to the pandemic, the US government is now down more than $30 trillion. This is a previously unthinkable scenario that has seen the world's largest economy downgrade to a record credit rating that everyone has so far dismissed as a big deal.

But we are not yet at the tipping point of the 2008 “credit crunch.” Despite activity in the bond market suggesting otherwise, the U.S. economy is still strong — and especially so is the U.S. consumer. Higher interest rates haven't deterred people from buying property, and with wages still rising faster than inflation, there doesn't seem to be any interest in reducing spending.

We also see some optimism in the markets, especially the cryptocurrency market, where investors like Terraform Labs, Three Arrow Capital, Celcius and FTX Ghosts started the next bull cycle by stocking up on altcoins.

Chances are, it will support an extremely strong bull market over the next year or two until it runs out of steam, as it always does. Eventually, the massive debt pile of US consumers will collapse, especially if interest rates remain high for a longer period of time.

The most important players in this cycle will be the US Treasury and the Federal Reserve. As we saw in March 2023, they are willing to rewrite the rules to ensure the survival of the banking system. When things go awry, the goalposts can move. But what goes up must come down. Of this we can be sure.

This article is not intended for general information purposes and should not be construed as legal or investment advice. The views, ideas and opinions expressed herein are solely those of the author and do not necessarily represent the views and opinions of Cointelegraph.