However, the underlying point – that rapid growth is often a sign of loosening supply and rising default risk – remains. Conclusion Financial distress is often preceded by rapid debt growth. By contrast, comparative levels of debt – at very different points of time, across countries and even for individual households in the same country – are much less informative. That doesn’t mean the level of debt doesn’t matter. But it may matter only relative to some sustainable threshold, one that’s not directly observable and that can vary. The precise terms, and therefore the riskiness of a given quantity of debt, are not exactly the same in every country. Over long periods of time there may be other changes in fundamentals – what is defined as debt or, more profoundly, changes in the neutral long-term interest rate – that make the measured total more or less affordable. Another possible explanation for these findings is that the forces that drive riskier and less sustainable debt tend to develop relatively rapidly. Certainly economic theory is less good at explaining variations in corporate lending over short periods of time than across different sorts of companies. That may be because the time series is dominated by swings in the supply of credit that are often less justified by the economic fundamentals. Periods of rapid growth are often accompanied by independent signs of loosening supply. There may be some lessons in this. One is to exercise care with comparisons in levels terms.
If so, one wouldn’t expect to pick up any levels effects, even when they genuinely exist, in simple cross-country comparisons like that in Chart 3. Those might simply be telling you that, for various structural reasons, a  3  All speeches are available online at www.bankofengland.co.uk/speeches  3  pound of debt is not quite the same thing, or equally risky, from one country to the next.2 Besides, the distinction between levels and growth rates is in any case a bit fuzzy. If one country has a higher debt burden than another it’s probably gone through a period of faster growth as well. That’s got to be the case if one’s comparing levels of debt in the same country but at different points in time. Nevertheless, the comparatively poor predictive power of the level of debt is quite striking and I think there may be a few lessons one can draw from this. First, if there are structural differences in the nature or terms of debt, whether across countries or over time, it is important to try and take account of them. One example in the UK is within unsecured household debt. This is now a pretty broad category. It includes two things – PCP (“personal contract purchase”) contracts for car purchases and student loans – both of which are relatively new and neither of which, arguably, is really unsecured debt in the conventional sense or at least carries the same risks for borrowers. PCP contracts are more like rental agreements.