Be it the Great Depression of 1929 or the financial crisis of 2008-09, excess leverage has played the most important role in inducing the crisis. Several economists argue that lack of action in 1929 translated into depression, but the decade preceding the great depression was characterized by significant leveraging in the economic and financial system.

Coming to present times, the policymakers have learnt little from the past as the stage is being set for the next big crisis. Easy money, expansionary monetary policies globally and significant government leveraging has resulted in global debt surging to $153 trillion as of 3Q15 according to data provided by BIS. The important point to note here is that $153 trillion in debt represents non-financial sector debt.

The chart below gives the global non-financial sector debt from the first quarter of 2007 to the third quarter of 2015. During this period, global non-financial sector debt has surged by $53.4 trillion.

Clearly, the world is in a bigger mess than it was in 2007 and this implies that the next crisis is likely to be bigger than the last one.

Another important point to note here is that the household and private sector leveraged prior to the financial crisis of 2008-09 and was later bailed out by the government sector. With the government sector leveraging and with several advanced economies entering into an inescapable debt trap, there is no room for bailout in the next crisis.