Credit is Not Wealth: The Spanish Acid Reflux Edition

Much to my dismay, the Wall Street is reporting that people feel “confident” again to spend credit in consumer markets. There’s some problems with this scratch-the-surface theory: it simply isn’t true. Wall Street is making this claim as Retail sales are forecasted down 1.4%. 

Household debt is still incredibly high; about $3 Million for every member of society.

original

So what gives?

Let’s turn to Spain for answers. Their household debt to GDP ratio has soared since they entered into a full blown depression. If it were America, and Wall Street saw that, I’m sure that they would praise the rebound of “confidence”. But then look at the debt in comparison to their 25% unemployment rate, and a much scarier picture emerges; Could it be that Spaniards are using credit for survival spending?

fredgraph

It looks the same all over the troubled Eurozone, including Greece and Italy, but Spain was the best example (and easiest) that I could get an “on-the-fly” graph for.

Credit is not wealth. Wall Street may like credit, but it assumes that banks are actually willing to give credit again after credit markets have been frigid for the past 5 years.

With retail down, and credit usage up, the only thing that more credit usage in the U.S. is a sign of is acid reflux; I hope the credit trap tastes better the second time around.

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This entry was posted in Demand, Economics, Political Economy, Public Policy. Bookmark the permalink.

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