Longer excerpt from The New Depression (taken from my Kindle highlights, so the excerpts aren’t necessarily the paragraphs I have put them in below, and there may be things in between that I didn’t highlight).
The quantity theory of money held that (all other things unchanged) an increase in the money supply would cause an increase in prices and a short-lived boom and bust cycle that, in the end, would leave nominal GDP higher, but real GDP unchanged. The quantity theory of credit differs from the older theory in only one important respect. It contends that, under the current system of fiat money, the boom and bust cycle is much longer because now credit can expand for far longer than the money supply could within in the commodity money based system of the past.
The “transition period” of the boom is far longer, but it is not infinite. It ends when credit ceases to expand. Ultimately, every credit-induced economic boom ends when asset prices become too inflated and industrial production becomes too excessive relative to the income of the public. The boom can only last if wages keep pace with asset prices and industrial output. When they don’t, the public becomes incapable of servicing its debt. Then the transition period ends, the boom goes into reverse and the depression begins.
…credit rarely ceases to expand until past loans begin to default in large numbers. Generally, credit growth goes on so long that it pushes asset prices to unaffordable levels on the one hand and it causes industrial production to exceed market demand on the other. At that point, not only does credit cease to expand, it begins to contract (at least for the affected sectors). The credit boom then becomes a credit bust as consumption and investment contract.
In the United States, total credit market debt expanded every year without exception between 1947 and 2008. That created an extraordinary period of prosperity in which credit growth drove economic growth. The New Depression began in 2008 when that credit could not be repaid and, as a result, credit began to contract.