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Blink 3 of 8 - The 5 AM Club
by Robin Sharma
House of Debt summary
Atif Mian and Amir Sufi
How They (and You) Caused the Great Recession, and How We Can Prevent It from Happening Again
15 mins
Brief summary
House of Debt by Atif Mian and Amir Sufi is a groundbreaking book that explains how the US housing market crash of 2008 was caused by excessive household debt, and why efforts to stimulate the economy through bailouts and low interest rates are inadequate without addressing the underlying problem.
Table of Contents
House of Debt
Summary of 8 key ideas
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Key idea 1 of 8
Severe recessions are caused by a huge build-up of consumer debt, followed a large drop in household spending.
What causes severe recessions? Some economists and analysts think they’re triggered by natural or political disasters. Others think these economic crises arise when irrational beliefs infect public consciousness.
But this is rarely true. Events like the Great Recession are, in fact, caused by high household debt.
From 2000 to 2007, US household debt essentially doubled in size, reaching $14 trillion. Likewise, the ratio of debt owed to income earned also jumped to an unprecedented level, from 1.4 to 2.1.
Similarly, household debt was also the key factor during the Great Depression. In the 1920s, the ratio of consumer debt to income more than doubled, while urban mortgage debt tripled.
These large debt loads cause severe consumer spending cuts, and intensify the harsh effects of a subsequent recession.
In fact, there’s a clear correlation between the amount of household debt before a recession and the amount of spending cuts observed during the downturn.
This was borne out by multiple studies showing that across Europe and Asia, increases in household debt in the decade leading up to the recession correlated to declines in spending after 2007.
For example, Ireland and Denmark both had greater jumps in household debt than the United States, and also more severe cuts in household spending.
Thus we can predict the severity of a recession by looking at data about consumer debt, and gauging likely cuts in consumer spending.
As we’ll see, these household debt increases are devastating to the economy, because without these elevated levels of debt, banking-crisis recessions are unexceptional. In fact, banking-crisis recessions with low levels of private debt are similar to normal recessions.
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What is House of Debt about?
When we bailed out the banks during the Great Recession, we didn’t actually address the real factors that caused the economic downturn. The actual problem lay with excessive mortgage lending to those who couldn’t afford it, which led to heavy debts and, eventually, huge collapses in consumer spending. To avoid the consequences of this boom-and-bust cycle in the future, the authors propose new ways of restructuring debt and stimulating the economy.
House of Debt Review
House of Debt (2014) explores the role of debt in the 2008 financial crisis and argues for a new approach to understanding and addressing economic downturns. Here's why you should give this book a read:
- Presents compelling research and data on how excessive household debt can lead to economic instability, shedding light on a crucial aspect of the crisis.
- Offers a fresh perspective on the importance of household debt in driving economic cycles, challenging conventional wisdom and providing new insights for policymakers.
- The authors' accessible writing style translates complex economic concepts into understandable terms, ensuring that this book won't bore the average reader.
Best quote from House of Debt
If it werent for the Great Recession, the income of the United States in 2012 would have been higher by $2 trillion, around $17,000 per household.
—Atif Mian and Amir Sufi
Who should read House of Debt?
- Anyone who wants to know about the vulnerabilities of our financial system – booms, bubbles and busts
- Anyone who wants to understand the mortgage industry
- Anyone who wants to buy a house
- Anyone who’s interested in macroeconomic theory and the Great Recession
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House of Debt FAQs
What is the main message of House of Debt?
The main message of House of Debt is that excessive household debt is the underlying cause of economic crises.
How long does it take to read House of Debt?
The reading time for House of Debt varies depending on the reader, but it typically takes several hours. The Blinkist summary can be read in just 15 minutes.
Is House of Debt a good book? Is it worth reading?
House of Debt is worth reading for its insightful analysis of the role of household debt in economic downturns.
Who is the author of House of Debt?
The authors of House of Debt are Atif Mian and Amir Sufi.
What to read after House of Debt?
If you're wondering what to read next after House of Debt, here are some recommendations we suggest:
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- Maps of Meaning by Jordan B. Peterson
- Fast. Feast. Repeat. by Gin Stephens
- Buddhism – Plain and Simple by Steve Hagen
- When Genius Failed by Roger Lowenstein
- Workstyle by Lizzie Penny and Alex Hirst
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