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Aaron Brown

The Next Credit Crisis Will Hit Consumers Hardest

The most vulnerable are those households with debt and no financial, real estate or business assets.

The next crisis will have some surprising victims.

The next crisis will have some surprising victims.

Photographer: Oli Scarff/Getty Images Europe

The National Bureau of Economic Research lists 29 credit contractions in the last 145 years, which works out to one every five years. We’ve now gone more than 11 years since the one started in 2007, the longest run in recorded history. But credit is a lot like a forest. Trees grow before eventually becoming old and littering the ground with dry deadwood before some unpredictable spark triggers a fire that damages the forest. So while it’s hard to guess when or where the fire will start, a map of forest conditions can provide a decent sense as to where damage is most likely — just like with credit.

Nine of the 29 NBER credit events had banking crises. Eighteen had stock market crashes, 16 caused extended contractions in credit availability, and 21 caused monetary shortages. Only two, the Great Depression and the financial crisis that began in 2008, were quinfectas, resulting in each of those four bad things plus a real estate collapse.