Wednesday, July 16, 2014

Consumer debt ratios

Mosler shows how consumer credit expansion coincided with periods of economic growth and, as one would expect, higher employment and wage growth:
Circled are the credit expansion from the ‘regrettable’ S and L expansion (over $1 trillion back when that was a lot of money), the ‘regrettable’ .com/Y2K credit expansion (private sector debt expanding at 7% of GDP funding ‘impossible’ business plans), and most recently the ‘regrettable’ credit expansion phase of the sub prime fiasco.

All were credit expansions that helped GDP etc. but on a look back would not likely have been allowed to happen knowing the outcomes.
So the question is whether we can get a similar credit expansion this time around to keep things going/offset the compounding demand leakages that constrain spending/income/growth.
Based on this, I would say that the household sector has de-leveraged, but without some "irrational exuberance" they are not going to start leveraging up again to produce another boom. What is also interesting is how the booms to supported by a mix of credit bubbles (very damaging to the economy when they pop) and asset bubbles (less damaging). The asset bubble in primary markets, aka Internet 2.0, seems to be too small to be impacting household debt levels at a national scale.


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