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With recent data showing that German exports fell 5.8 percent from July to August, and that industrial production shrank by 4 percent, it has become clear that the country’s unsustainable credit-fueled expansion is ending. But frugal Germans typically do not see it that way. After all, German household and company debt has fallen as a share of GDP for 15 years, and public debt, too, is now on a downward path. “What credit-fueled expansion?” they might ask.

The answer lies in the reality of our interconnected global economy, which for decades has depended on unsustainable credit growth and now faces a severe debt overhang. Before the 2008 financial crisis hit, the ratio of private credit to GDP grew rapidly in many advanced economies — including the United States, the United Kingdom and Spain. Those countries also ran current-account deficits, providing the demand that allowed China and Germany to enjoy export-led expansion.

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