Belt-tightening is coming to an end in the public sector as well. State and local governments cut nearly 700,000 jobs since their peak in 2008, but they've added workers in three consecutive months, and a fourth would mark the first year-over-year increase in state and local government workers since 2009.

(Year-over-year change in state and local government workers)



Next year, with housing starts and home prices on the rise, households borrowing money again, state and local governments adding workers instead of cutting them, and the uncertainty of the election and the fiscal cliff behind us, corporations are going to take advantage of record-low interest rates to invest in their businesses, buy other assets, and, in the case of private equity companies, pay themselves dividends.

Should we be worried, and are we just repeating the mistakes of the last cycle? Not yet. As Larry Summers has argued, the irony of financial crises is that they're caused by too much confidence, borrowing, and spending, but they're only resolved by re-surging confidence, borrowing, and spending.

Fixed investment, especially residential fixed investment, remains well below normal levels. Unemployment remains high. Inflation is low. Credit markets may be frothy, but compared to a year like 2006 where households added over $1 trillion in debt, private sector debt growth remains subdued.

Part of the reason is it's still very hard for households to get financing to buy houses. In August, at Fannie Mae and Freddie Mac the average credit score of borrowers purchasing a home was 763. It's a far cry from the bubble days when all one had to do to get a loan was fog a mirror.

And for better or worse, the Federal Reserve has told us that interest rates will remain low for several more years. As we saw during the last crisis, it's not the borrowing that gets people in trouble, it's servicing debt loads after interest rates have gone up.

We may be brewing trouble for 2015 or 2016, but for now, in the words of one former chief executive of Citigroup, it's time to dance.

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