Debt is a leading indicator of a temporary and artificial increase in spending and prices: people don't take out loans just because they want to sit on a pile o

Debt is a leading indicator of a temporary and artificial increase in spending and prices: people don't take out loans just because they want to sit on a pile of money, they take out loans because they want to buy goods and services. And when more money is chasing after the same goods and services, prices goes up (microecon 101). If investors are making bad forecasts by assuming that such temporary upward trends in price will be sustained for a long time, or even permanent, then the result is a bubble economy. A bubble exists because it is a self-fulfilling prophesy: when investors increase debt ("leverage") in order to invest in whatever good is currently rising in price (i.e. has already been bid up via debt-funded spending), those investors further increase the price and thus attract even more investors. This continues until a sufficient number of investors are cashing out in order to pay back the debt (whether due to the timeline of the loan or due to the lender calling them on their leverage position). Investors who don't use leverage (i.e. use only their own money) are far less capable of creating large price moves: a leveraged investor can generate a trade volume two or three orders of magnitude larger than an unleveraged investor. Bubbles are much harder to sustain purely with unleveraged investments: to become a bubble, a price rise has to be sharp enough to attract attention, bringing in more investors to form the next layer of the pyramid.