Whenever Margin Debt Goes Over 2.25% Of GDP The Stock Market Always CrashesMichael Snyder In April (the last month we have a number for), margin debt rose to an all-time high of more than 384 billion dollars. The previous high was 381 billion dollars which occurred back in July 2007. Margin debt is about 29 percent higher than it was a year ago, and the SP 500 has risen by more than 20 percent since last fall. The stock market just continues to rise even though the underlying economic fundamentals continue to get worse. So should we be alarmed? Is the stock market bubble going to burst at some point? Well, if history is any indication we are in big trouble. In the past, whenever margin debt has gone over 2.25% of GDP the stock market has crashed. That certainly does not mean that the market is going to crash this week, but it is a major red flag. The funny thing is that the fact that investors are so highly leveraged is being seen as a positive thing by many in the financial world. Some believe that a high level of margin debt is a sign that investor confidence is high and that the rally will continue. The following is from a recent article in theWall Street Journal Posted below is a chart of the performance of the SP 500 over the last several decades. After looking at this chart, compare it to the margin debt charts that the New York Times recently published that you can find right here. There is a very strong correlation between these charts. You can find some more charts that directly compare the level of margin debt and the performance of the SP 500 right here. Every time margin debt has soared to a dramatic new high in the past, a stock market crash and a recession have always followed. Will we escape a similar fate this time? At some point the stock market will catch up with the economy. When that happens, it will probably happen very rapidly and a lot of people will lose a lot of money. And there are certainly a lot of prominent voices out there that are warning about what is coming. For example, the following is what renowned investor Alan M. Newman had to say about the current state of the market earlier this year Unfortunately, most Americans never get to hear such voices. Instead, most Americans rely on the mainstream media to do much of their thinking for them. And right now the mainstream media is insisting that we are not in a stock market bubble Forbes: Why Stocks Are On Solid Footing And This Is No Bubble ABC News: AP Survey: Economists See No Stock Market Bubble Businessweek: Prognostications: Its Not a Stock Bubble Yahoo: This Is NOT a Stock Bubble! Says Ben Stein MarketWatch: Is a stock bubble coming? No, say economists So what do you think? Do you believe that we are in a stock market bubble that is about to burst, or do you believe that everything is going to be just fine? Please feel free to express your opinion by posting a comment below This article first appeared here at the Economic Collapse Blog. Michael Snyder is a writer, speaker and activist who writes and edits his own blogs The American Dream and Economic Collapse Blog. Follow him on Twitter here. 