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.

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.

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

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

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.

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

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

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

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

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

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.

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

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

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

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

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

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.

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

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

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

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 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.

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

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

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.

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.

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

To the extent that banks and other highly leveraged financial institutions hold them, the bursting bubbles could cause bankruptcies and financial market breakdown.

Lenders to very large overleveraged institutions had to have some incentive to calculate the risks.

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).

As Carmen Reinhart and Kenneth Rogoff argue, recoveries from crises that result from over leveraged balance sheets are slow and typically resistant to traditional macroeconomic stimulus.

But in the post crisis downswing, accumulated debts have a powerful depressive effect, because over leveraged businesses and consumers cut investment and consumption in an attempt to pay down their debts.

But we should realize that there are fundamental causes for the imbalance on the US side as well, such as over consumption financed by excessive leverage and high budget deficits.

But even HSBC, the best capitalized of the lot, has a leverage ratio of only 4.6 , while Barclays ratio is under 3 .

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.