The drop in virtually all credit spreads and the asset price booms were particularly important in spurring households and firms to increase consumption or accumulate debt at a rapid pace. Much of this boom was based on the erroneous assumptions that house prices and asset prices would continue to increase indefinitely, and that macroeconomic cycles had been eliminated.
10 There were cycles around that level, with the current account narrowing to 2 per cent of GDP in 2001 in the aftermath of the Asian crisis and widening to around 6 per cent of GDP in 2007. At the same time, there was reasonable stability in the major components of the capital account.