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Interesting intro. It's even translated into French I noticed. So northern Europe is borrowing three times more (per capita) than the US? That goes against ever
by ArnoVW 6y ago
Interesting intro. It's even translated into French I noticed. So northern Europe is borrowing three times more (per capita) than the US? That goes against everything I know.
One question: did you separate out consumptive credit from mortgages? The amount is so high that it seems to me that it includes mortgages.
Because in that case, is it not the cases that it is simply because norther Europe is wealthy and has more expensive houses and more home ownership.
Those mortgages are backed by houses, and are a sign of good financial practices, allowing gradual increase of wealth. Where consumptive credit is backed by nothing and is generally a sign of bad financial practices.
- skybrian 6y agoWell, it's unsecured debt, but a credit card is informally backed by your future income. You might say that all personal debt is backed primarily by your future income. Even mortgages are backed primarily by future income and secondarily by the house, and this is why the bank wants to know how much money you make. Whether or not credit card debt results in future wealth depends on what you buy.
- ArnoVW 6y agoI'm not an expert in finance, so don't hold it against me if I'm wrong, but does "backed by" not rather mean that the bank can have your house if you can't make payments? This in opposition to a credit card debt where they have no come-back. Other than the courts and collections agencies. I was under the impression that this was the reason that consumptive loans generally are capped far far lower than mortgages. And have triple their interest rates. While it is true that I can put my university on my credit card, it is very expensive and very rare. I would wager that the majority of these loans are for cars. Which, I agree can create wealth, but it would have been 'better practise' to buy a cheaper car, and switch when that anticipated wealth has been created. Moreover, those cars explain only part of the loans. The rest is 'bigger tv' or the likes. And those do not even create wealth.
- skybrian 6y agoIt's ambiguous. I'm pointing out some grey areas. When speaking loosely, we can talk about what a loan is "backed by" meaning how people expect to pay it back. Or you could talk about what property secures the loan, legally. Regarding investment, there are startups that got off the ground by running up credit card debt. It's not what I would do, but it's more like investment than consumption. Or you could pay for your car to be repaired using a credit card, and if you need the car to get to work, well...
- kome 6y agoThank you for taking the time to read! Yes, in the full paper I separated consumer credit from mortgages. In the intro I linked, indeed they are aggregated. Long story short: in northern and continental Europe consumer credit is almost non-existent. Very tiny numbers. Notable exception: the UK. But more mortgages don't necessarily mean more home ownership eh. "Those mortgages are backed by houses, and are a sign of good financial practices, allowing gradual increase of wealth. Where consumptive credit is backed by nothing and is generally a sign of bad financial practices." That's almost my conclusion as well, but I put more emphasis on what social policies encourage you to do, more than on good or bad practices. In the US they really encourage going for consumer credit, also their bankruptcy legislation is more lenient and encouraging a fresh start; while in Europe we are much more draconian with debt.