Over levered households cannot spend, over levered banks cannot lend, and over levered governments cannot stimulate.

Excessive leverage needs to be reined in.

The second question is how to constrain leveraged growth in the future.

The titans of Wall Street and the City of London were exposed as hugely over leveraged.

The World Bank Group (WBG) is a family of five international organizations that make leveraged loans to developing countries.

The point is that debt fueled demand emanates from particular households in particular regions for particular goods.

Accordingly, even countries with sound balance sheets and manageable leverage have experienced a growth slowdown.

But offsetting fiscal austerity with ultra easy monetary policies risks fueling a resurgence of private leverage in advanced economies and already has produced the dangerous spillover of rising leverage in emerging economies.

Eurozone banks became among the world s most over leveraged and the worst affected by the crash of 2008.

These groups protected the growth in consumption to which they had become accustomed by going more deeply into debt.

Leverage in some emerging markets household and corporate sectors has reached record levels.

Do we need financial institutions to be so highly leveraged (that is, carrying so much debt relative to equity)?

They can take on more risk running a more highly leveraged business with less shareholder capital.

So long as European banks remain undercapitalized and overleveraged, a sustainable recovery supported by robust bank lending is unlikely.

The US has made a complete U turn in ideological and practical terms, relying on Keynes and massive debt financed public demand to rein in further economic decline.

The tradable sector is expanding and is not dependent on leverage to generate aggregate demand.

But in the end, these very different circumstances produced a common and inherently simple problem over indebtedness.

Higher incomes would boost US savings, reducing households dependence on debt, even as they maintained consumption levels.

Executives in highly leveraged institutions should be paid more, because they bear more risk.

The legacy of excess real estate capacity and over leveraged households makes recovery all the more difficult.

But they have not eschewed the use of variable capital and reserve requirements, loan to deposit ratios, and thresholds for minimum deposits and maximum leverage as controls on property lending.

With little incentive to manufacture structured investment vehicles, few Spanish banks created them, thereby avoiding excessive leverage.

This form of financing is often used by private equity investors to reduce the amount of equity capital required to finance a leveraged buyout or major expansion.

The French have always been less likely to go into debt when they pay with plastic, they tend to use debit cards, drawing on funds they already have, rather than credit cards.

And a banking system that never received a taxpayer subsidy could still support excessive private sector leverage.

As a result, investors are worried that China could slip into the excess leverage growth model that has served many developed economies so poorly.

This recession was caused by a mispricing of risk, leading to excessive leverage and high prices for a wide range of assets.

Significantly, it does next to nothing to alleviate the twin problems of excess leverage and inadequate saving.

Japan s lost decades after 1990 were the direct and inevitable consequence of the excessive leverage built up in the 1980 s.

Private leverage levels, as much as the public debt burden, must therefore be treated as crucial economic variables.

The stock market is the first logical place to look, as it is a highly leveraged investment and has a history of bubbles.

As a result, the benefits associated with deficit financed boosts to household income are now being diminished by the propensity to save and rebuild net worth.

This East Asian savings glut enabled a debt fuelled consumption glut in the US, Britain, and much of the Western world.

These are highly leveraged businesses, typically funding their balance sheets with no more than 5 equity (and thus 95 debt).

But, like the Soviet Union and its satellites, the smaller and dynamic Asian economies had taken on too much debt.

(By contrast, non financial corporations rarely borrow more than 70 of their assets, and often much less, despite the absence of any regulation of their leverage ratios.)

And what did the relatively poor do to keep up with the Joneses in this world of rising standards? They did what the poor have always done got into debt.

Mexico, for example, recently adopted ahead of schedule the changes in capital requirements for banks recommended by the Third Basel Accord (Basel III), in order to reduce leverage and increase stability.

The Iraq war has been financed entirely on credit and partly because of that, the US national debt has increased by two thirds in just eight years.

Rising production costs and falling prices for their products is a recipe for indebtedness, and debt is the main cause of farmers suicides.

And the crises that often divide the leveraging and deleveraging phases cause additional balance sheet damage and prolong the healing process.

Thanks in part to research by Reinhart and Rogoff, we know that excessive leverage is unsustainable, and that restoring balance takes time.

Equity based awards, coupled with the highly leveraged capital structure of banks, tie executives compensation to a leveraged bet on the value of banks assets. As Holger Spamann and I show in our research, executive payoffs should be tied to the long term value delivered not only to shareholders, but also to other contributors to banks capital.

The economy is still struggling to provide a sufficient number of jobs for those who were previously employed in leverage driven activities that are no longer sustainable (let alone desirable).

Clinton also refused to regulate credit default swaps, and the US Securities and Exchange Commission allowed banks to triple their leverage.