Can Household Debt Cause a Financial Crisis?

Joëlle Leclaire ()
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Joëlle Leclaire: State University of New York

A chapter in Care, Climate, and Debt, 2022, pp 127-143 from Springer

Abstract: Abstract This chapter investigates the role of household debt in economic growth from four Post Keynesians perspectives. We find that household debt can cause a financial crisis via five channels. It influences the consumption levels of households, the leverage of financial institutions, rate of return on mortgage and other debt held by banks and other financial institutions, the rate of return on production of goods and services, and the overall well-being of households in our economy. Amelioration of household debt’s systemic risk is discussed from two sides. From the income side, creating a work environment favorable to unions and a job guarantee program provides greater stability. From the expenditure side, providing medicare, childcare, eldercare, higher education, and potentially housing, would remove the reasons why households acquire potentially unsustainable debt.

Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-030-96355-2_7

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DOI: 10.1007/978-3-030-96355-2_7

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