Household Debt in Malaysia – Is It Sustainable?


ONE IMPORTANT LESSON from the financial crisis of 2007–2009 is that economic stability and financial fragility are not only influenced by consumer prices and wage inflation. Equally if not more important are asset price inflation, financial/corporate leverage and household leverage. Central banks throughout the world have neglected the latter and focused on the former, contributing to the financial crisis.

This is particularly true in the US, where 72% of its gross domestic product (GDP) is powered by private consumption, and household debt was nearly 100% of its GDP in 2007. Today, the US and world economic recovery are still weak because financial institutions and households are still deleveraging, i.e. reducing their high levels of unsustainable debt.

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