The 2007-2008 financial meltdown was often called “the debt crisis.” U.S. households and financial institutions became increasingly indebted or overleveraged during the years preceding the crisis. This increased their vulnerability to the collapse of the housing bubble and worsened the ensuing economic downturn.
Key statistics include:
Free cash used by consumers from home equity extraction doubled from $627 billion in 2001 to $1,428 billion in 2005 as the housing bubble built, a total of nearly $5 trillion over the period. U.S. home mortgage debt relative to GDP increased from an average of 46% during the 1990s to 73% during 2008, reaching $10.5 trillion.
So, what’s your point, Dr. Filly, ask you? My point, answer I, is that it is happening again.
It appears that the lesson has been forgotten.
And thanks to PK for sending this graph to me.