Structural Macroeconomic Debt Overhang
This occurs if there is a latent output gap or underemployment in an economy, which is bridged repeatedly by credit creation, the build up of which results in a debt overhang. Conversely, you may deduce from a long term tendency to build up debt the existence of latent structural underemployment. Typically private lenders (banks) boldly venture forth: whether they lend to developing countries like in the 1970s, covered by the expected stream of high future coupons, or excessive consumption of their own folk covered by higher paper valuations of assets, it is the same basic story. In the eventual shakeout (due yet again, in the last instance, to latent underemployment), the debt overhang is preserved by substituting public debt for private debt (bailouts), and—keeps growing.
Read more about this topic: Debt Overhang
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