Although it might not feel like it, we're experiencing a global financial boom – and the bubble is due to burst soon

Another day of boom for financial markets, but might it be a bubble that will eventually burst?

Here in the UK we are preoccupied by Brexit and the forthcoming rise in interest rates. It would be a big surprise, by the way, if the Bank of England does not go up by 0.25 per cent to 0.5 per cent on Thursday. But elsewhere in the world optimism prevails.

For the first time this century, the three main economic regions – the US, China and the eurozone – are all experiencing decent growth at the same time. Result: a synchronised global recovery. Add in strong growth from India, a bit of a lift in Japan, and not that bad progress in Britain (sterling at a four-and-a-half-month high against the euro on Wednesday), and what’s not to like?

That, at least, seems to be what a lot of investors feel right now: that the risks of not joining the party and missing out on what is left of the boom are greater than the risks of a sudden crash. To take the S&P 500 index, currently around the 2,580 mark, the risk that it will go to 3,000 is greater than it will go back to 2,200.

Since shares around the world are pretty high by past standards – US companies are on much the same valuation as they were at the 2007 peak – I think most of us who try to follow the markets have become a bit nervous. But the idea that the upside risk is greater than the downside one is interesting, for it does encapsulate investor mood more generally.

A survey of US investors last month showed that more than 60 per cent expected shares to be higher in a year’s time than they are now. A new paper by Charles Dumas at Lombard Street Research explains why.

His argument is that there are three big drivers that make the upside more likely than the down. First there is the synchronised recovery noted above. Second, while most commentators are warning about a fall, investors have buying power – and had they listened to the warnings they would have lost out on a 25 per cent rise in share prices over the past two years.

Third, the underlying inflation rate in the US, Europe and Japan is still very low. So the central bank commitment to pushing inflation up to 2 per cent will keep them pumping out the money that will fuel the boom.

I find this persuasive. But of course there are several dangers. The most obvious is that the totemic aim of 2 per cent current inflation will lead them to ignore the dangers of a further surge in asset prices, with all the implications for increased inequality that carries. If you pump up asset prices, those who have assets (ie the rich) gain at the expense of those who don’t.

Another is that they do indeed achieve the 2 per cent target (the UK is above it) and then find they have stoked up the economies so much that inflation races on to 5 per cent or more. They made the mistake of letting the 2005-2007 boom get out of control because they were misled by the low inflation that resulted from China’s increased flow of cheap exports.

Behind all this debating are questions about the next downturn. We know there is a global economic cycle and we know that the current growth phase has become unusually long. Intuitively, because the last downturn was such a humdinger the growth phase ought to be a long one. We started from a long way back. Also some of the lessons about the mistakes of the financial service industry in the 2000-2008 years have been learnt. It won’t be a banking crash that brings this expansion to an end; it will be something else.

But, whatever it is, that could be two or three years away, conceivably more.

If that is right, it is good news. Growth is better than recession, for ultimately it leads through to higher living standards for most people. Jobs are better than unemployment.

In economics, there is a rule of thumb that things take longer to happen than you would expect, but when they do they happen more swiftly and more violently. The current share prices boom feels as though it has legs. But the longer it runs, the greater the danger of a destructive and disruptive ending. Then, unfortunately, it is not only the people who have profited from the boom who get hurt.