Are Rates Stressful or Are We Barking Up the Wrong Tree?

For finance to consistently grow as a proportion of GDP, either it is simply upping its take — which might be reasonable within bounds, but raises questions of adequate competition in the sector and of possible regulatory capture — or it is making more and more MBS-like time bombs. It is spinning off flows of toxic financial exposure, of whose valu

Cynamon and Fazzari see few prospects for a meaningful recovery among the majority of consumers and “fear that the demand drag from rising inequality that was postponed for decades by bottom 95 percent borrowing is now slowing consumption growth and will continue to do so in coming years.”

In FY 2010-11 the share of consumer credit in total bank credit was only 19%. By FY2023-24 this increased to around 33%. Nearly half of this credit is unsecured or quasi-secured (secured against weak collateral), which makes it riskier. In the post-pandemic period, much of the growth in bank credit has in fact been driven by growth in consumer lend

In 2015, the Bank for International Settlements warned that finance was crowding out the real economy. More bank loans went to sectors with plenty of collateral, such as real estate, which generated little by way of efficiency improvements. Manufacturing and businesses that required lots of R&D were starved of credit. Beyond a certain point, th

Baumol’s cost disease to include any sector of the economy where demand is inelastic (goods and services that most consider “essential), and supply/productivity is naturally and/or artificially restricted. With this expanded definition, four sectors of the economy stand out as afflicted by cost disease: healthcare, higher education, housing, and ch