Governments relying on consumer debt to fuel economic growth run the risk of causing another financial crisis, warns the International Monetary Fund's up to four years ahead report. "As the global financial crisis showed, rapid growth in household debt – especially mortgages – can be dangerous," says one of the authors Nico Valckx, adding that “higher debt is associated with significantly higher unemployment annual. And a one percentage point increase in debt raises the odds of a future banking crisis by about one percentage point. That’s a significant increase, when you consider that the probability of a crisis is 3.5%, even without any increase in debt.”
Governments relying on consumer debt to fuel economic growth run the risk of causing another financial crisis, warns the International Monetary Fund's annual report. "As the global financial crisis showed, rapid growth in household debt – especially mortgages – can be dangerous," says one of the authors Nico Valckx, adding that “higher debt is associated with significantly higher unemployment up to four years ahead. And a one percentage point increase in debt raises the odds of a future banking crisis by about one percentage point. That’s a significant increase, when you consider that the probability of a crisis is 3.5%, even without any increase in debt.”