The great leveraging

Working Papers No 398
December 2012

What can history can tell us about the relationship between the banking system, financial crises, the global economy, and economic performance? Evidence shows that in the advanced economies we live in a world that is more financialized than ever before as measured by importance of credit in the economy. I term this long-run evolution "The Great Leveraging" and present a ten-point examination of its main contours and implications.

JEL classification: E3, E5, E6, N1, N2

Keywords: banking, financial development, credit, booms, crises, recessions, global imbalances, Great Recession, fiscal policy