The Deleveraging of U.S. Households: Credit Card Debt Over the Lifecycle

Eggertsson and Krugman (2012) contend that “if there is a single word that appears most frequently in discussions of the economic problems now afflicting both the United States and Europe, that word is surely debt.” These authors and others offer theoretical models that present the debt phenomenon as follows: The economy is populated by impatient and patient individuals. Impatient individuals borrow as much as possible, up to a debt limit. When the debt limit suddenly tightens, impatient individuals must cut expenditures to pay their debt, depressing aggregate demand and generating debt-driven slumps. Such a reduction in debt is called deleveraging.
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