Societe Generale’s Albert Edwards discusses “Monetary Schizophrenia” in his latest email alert. Here are a few interesting snips.
In the wake of the 2008 GFC, the UK and US household sectors went through a heavy bout of de-leveraging. The dominant source of household credit in both countries is via mortgages, the growth of which has only recently recovered into the low single digits (around 3%). The problem instead now lies in unsecured credit, the growth of which has exploded above 10% in both countries.
The simple fact is monetary policy is way too loose in the UK as well as in the US, and let us not forget the BoE cut rates in the immediate aftermath of last Julys Brexit vote. Bubbles are appearing in areas like consumer credit because interest rates are far too low and need to be raised. And yes, when interest rates are excessively low, both borrowers and lenders do stupid things. But to ignore their own role in creating debt misery for millions, the BoE can only deal with its own cognitive dissonance by blaming someone else. When this debt bubble blows, I suspect citizens’ rage will be directed where it belongs.
I’ve heard stories of credit card loan search engines spewing out money on 4 year, 0% teaser loans. What really shocked me is that after having been offered a credit card loan facility via a search engine, one is able to make multiple further self-certified applications and be offered similarly large amounts! Amazingly there was no question about existing debts!
I agree with all of the above except on who gets the blame.
The media will blame Trump, greedy CEOs, hurricanes and my deceased mother before placing blame where it belongs.
The sheep will follow the media.
Mike “Mish” Shedlock