Debt cycle monitor
Private debt, the loans made to businesses and households, is a better economic crisis indicator than public debt. High and rapidly growing levels of private debt weigh on aggregate demand. Interest rate rises make debt maintenance more difficult and can kick off a deleveraging when the debt burden is too big.
The countries with the highest risk of crisis are:
- High risk: France, Hong Kong SAR, Korea, Singapore, Sweden, Switzerland
- Medium-high risk: Australia, Austria, Belgium, Canada, Denmark, Finland, Ireland, Japan, Luxembourg, Netherlands, New Zealand, Norway, Portugal, Spain, Thailand, United Kingdom, United States
Did not expect to see Switzerland and Sweden on the high risk category.
We (Sweden) have a lot of household debt and sector specific debt (mainly commercial real estate). Any major shortcomings to service or refinance debt at more normal interest rates are at high risk to be socialized by increased government debt (via bank bailouts, guarantees and welfare state support to overlevered households).
Interestingly, Sweden had a major banking and real estate crisis just about one working generation ago (early 1990s). The recent decade's ZIRP experiment did speed up the tendency to forget, it seems.