Excessive leverage can lead to economic downturns from "summary" of House of Debt by Atif Mian,Amir Sufi
Excessive leverage, or borrowing too much, can have devastating consequences for the economy. When households and businesses take on too much debt, they become vulnerable to economic shocks. This vulnerability can lead to a downward spiral of defaults and bankruptcies, as borrowers struggle to meet their debt obligations.
During a downturn, borrowers may cut back on spending in order to pay down their debts, which can further exacerbate the economic slowdown. This reduction in spending can lead to lower demand for goods and services, which in turn can lead to layoffs and higher unemployment rates. As more people lose their jobs, they may be unable to pay their debts, leading to even more defaults and bankruptcies.
The cycle of excessive leverage and eco...
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