The attached article, from the latest BIS quarterly review, looks
at debt to GDP ratios, comparing bank lending with all debt sources. It concludes that the broader measure of debt
is a better indicator of instability.
It is worth saying a little bit about the implications of this
result.
Bank lending is part of the money creation process, non-bank lending is
not. A high level of bank lending is
often seen as being particularly problematic because it involves an expansion
of the money supply. The growth of money
is identified as the source of the problem, rather than the growth of credit.
This is a dangerous view, because policy measures focused on money may miss the real problems.
This article should remind us of that.
Also, net indebtedness of the nation. In the Euro Crisis, international investment position almost clearly separates out troubled nations versus others.
ReplyDeleteYes. A better indicator than either public sector debt or private sector debt measured separately.
ReplyDelete