Massive surge in household debts could cause new devastating financial crisis
IMF warns the level of credit in the economy could lead to a new financial disaster
SOARING consumer borrowing could lead the world into another financial meltdown.
That's the new warning from the International Monetary Fund (IMF), which said the surge in borrowing by hard-up households could trigger another credit crunch.
In a report which will be discussed at its annual meeting in Washington on Wednesday, the IMF said the level of borrowing in many countries could spell trouble for the global economy.
Economist Nicko Valckx said: "Debt greases the wheels of the economy. It allows individuals to make big investments like buying a house.
"But as the global financial crisis showed, rapid growth in household debt – especially mortgages – can be dangerous.
"A sudden economic shock – such as a decline in home prices–can trigger a spiral of credit defaults that shakes the foundations of the financial system."
In July, the UK's City watchdog, the Financial Conduct Authority (FCA) reported unsecured consumer credit hit £200billion for the first time since the financial crash in 2008.
The IMF report echos fears that the level of household debt is presenting a real danger to the UK economy.
The Bank of England has asked banks to set aside a further £10billion to cover potential losses from people who can't pay their debts.
And last week, the head of the Financial Conduct Authority (FCA) Andrew Bailey slammed credit card firms for not doing enough to help vulnerable customers.
RENT WOE TENANTS ARE FALLING BEHIND WITH THEIR RENT IN WAKE OF NEW BENEFITS SHAKE UP
Mr Valckx said that while high-levels of borrowing can boost the economy in the short-term, in "three to five years" the "odds of a financial crisis increase."
He added that the IMF looked at 80 economies and found the level of household debt had grown significantly since the 2008 crash.
He said: "Given the widespread misery the crisis caused, you might think people have become skittish about borrowing more. Surprisingly, that’s not the case."
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