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Is Personal Debt Sustainable?

Dimitri Papadimitriou, Anwar Shaikh (), Claudio H. dos Santos and Gennaro Zezza

Economics Strategic Analysis Archive from Levy Economics Institute

Abstract: The long economic expansion was fueled by an unprecedented rise in private expenditure relative to income, financed by a growing flow of net credit to the private. On the surface, it seemed that the growing burden of the household sector's debt was counterbalanced by a spectacular rise in the relative value of its financial assets, but this was never a match among equals, and the great meltdown in the financial markets has proved this imbalance to be true. The private sector has dramatically cut back its acquisition of new credit and reversed the path of its financial balance, but this adjustment has been uneven within the sector: the business sector suffered a huge drop in investment while the household sector has continued to borrow.

Date: 2002-11
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