The story of the last decade - buouyed by historic low interest rates and the marvels of modern financial engineering, a real estate bubble develops. The resultant "wealth effect" from rising home prices encourages households to leverage themselves massively and indulge in a consumption binge. The cheap goods and capital from China amplifies all these trends. While one can quibble about the sequence of events (whether housing bubble started the leveraging or vice-versa), it cannot be denied that broadly this was what led us to the Grteat Recession.
It now appears that America was not alone in travelling this path. A San Fracisco Fed working paper by Reuven Glick and Kevin J. Lansing finds clear evidence of both home price bubbles and excessively leveraged households across many developed economies in the 1997-2007 period.
Real house prices have been on the way up since 1997
(All series are indexed to 100 in 1997 except Finland, which is indexed to 100 at 2001)
Household leverage ratios or share of debt to disposable incomes have followed suit, with Denmark and Ireland leading the way
The correlation between home prices and leverage is unmistakable
And those with the largest increases in household levereage have experienced the biggest declines in household consumption as the process of deleveraging started in the aftermath of the bubble bursting