The economic-financial system has started up again from the place it got jammed. Monetary flooding has stabilized finance, while sovereign debt, though still a major factor, appears to be under control and at a significantly reduced cost.
The enormous liquidity in circulation is looking for new and high returns, given that OECD reports that 40 percent of bonds (including securities issued by corporations or public institutions) provide negative returns.
That is why one of the engines for restarting the machine is debt, or rather, private debt.
A recent report by the BNL research department, under the heading “A special overview: private sector debt,” states that the relationship between private debt (that held by citizens and businesses) and GDP is one of the indicators to keep under control as it measures the ability to repay the debt in the medium and long term. In the Eurozone, this indicator had risen from 110 to 147 percent between 1999 and 2009. In 2016, however, it was still at 140 percent.
Private debt in the Eurozone covers very diverse situations, ranging from 56 percent in Lithuania to 350 percent in Cyprus.
In countries like Belgium, France, Slovakia and Finland, this ratio is steadily rising. In addition, in regards to household indebtedness in relation to their income, the poorer households show a vulnerability in countries like Greece, Spain, Cyprus, the Netherlands and Portugal, while in countries like Germany, France and Ireland, families in higher income classes present particularly high ratios.
On the corporate side, the data is less precise, despite the fact that corporate debt accounts for most of its private debt, and accounts for 58 percent of investments of financial corporations.
Overall, the BNL report defines debt recovery in Europe as “prudent,” much better compared with the Anglo-Saxon countries.
In Britain, again there are potential risks to the banking system because of consumer credit (up 10.3 percent in May 2017 compared to last year). This risk “exposes households to a higher level of indebtedness than in 2008.” There are three million Britons, for example, who pay more for interest and fees on their credit cards than capital, and thus they end up in a chronic state of indebtedness. This type of financing has reached £67 billion, a higher figure than that achieved in 2008.
In the United States, in the first quarter of this year, household debt has reached $15.151 trillion, or 10 percent more than in 2013. Overseas, there is also concern about consumer credit and car purchase loans, which have increased by 70 percent compared to 2010 and the defaults of the subprime component, which reached 9 percent last January, the highest rate in the last eight years.
After 10 years of dangerous life, the heterodox hypotheses, even the most moderate, are going back in the drawer. Regulatory reforms seem modest and always lagging behind the real finance occurrences.
Debt provided a propulsive leverage to the economic-financial mechanism that became the triggering cause of the crisis and, once the picture is normalized, it has returned to its original distortion. The lesson was soon forgotten.
No self-regulation of the system appears feasible, an actual budgeting of financial limits can only be achieved with the mobilization of its victims.