SINCE THE EARLY 2000s, household debt has been on the rise in both developed and emerging economies across the globe. Many developed countries face extremely high household debt-to-GDP ratios even after having initially seen significant declines in household debt in the wake of the Great Recession. Since then, debt levels have begun to creep back up. Meanwhile, emerging markets have also seen precipitous increases in consumer spending and household debt fueled by the rapid expansion of credit. As a negative correlation exists between household debt-to-GDP ratios and long run economic growth, there is concern as to the drag being placed on economies, both developed and emerging. And with continued fragility and systemic risk in the global financial system, there exists the potential for the emergence of new financial crises as central banks begin to raise interest rates, household debt rises and repayment becomes more burdensome. Under such circumstances, it is likely the global credit boom will give rise to a global credit crunch.
