The End of Easy Money

Years of low-interest lending allowed U.S. consumers to run up debt. But they can no longer borrow their way out of trouble

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Again and again in these past few months, financial markets have appeared to be on the verge of something very scary. It happened first and most jarringly in February, when subprime-mortgage woes made headlines in the U.S. and a market crashlet in Shanghai sent global stocks into a swoon. Lately the scares have been smaller but more frequent: a sharp rise in interest rates in May, runs on a couple of hedge funds in June, a sudden drop in demand for risky mortgage and corporate debt in July.

During each of these episodes, the financial pages filled with fret: Would this...

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