Gillian Tett, FT columnist, trained as anthropologist, always writes columns worth reading. Perhaps it is because she looks deeply through issues, rather than simply referring to numbers, models and financial theory.
In a recent column, she discusses that the financial problem cannot be fixed without tackling “debt addiction” and refers to a recent speech by Lord Adair Turner dealing exactly with this issue. Until this is fixed, policy makers will simply be propping up an unstable system. The traditional role of banks which is to take deposits, in order to fund investments, is no longer true. He mentioned that only 15% of financial flows go into investment projects. The rest support existing corporate assets, real estate or unsecured personal finance to “facilitate lifestyle consumption smoothing.” Lord Turner notes that some non-investment finance is socially useful, but the bulk is not. In my opinion, this serves to feed the speculative bubble. The accompanying slides are also worth reviewing.
In a recent debate in London, Andrew Haldane pointed out that private credit in relation to GDP has doubled to 200% in past 50 years. Both Turner and Haldane discuss falling “productivity” of money, since credit continues to rise while growth remains flat. That means that even as easy money continues in the US and the UK (although not in Portugal!), money is bringing about decreasing impact on job creation and economic growth.
Troubling times! However, it is not just an issue of easy money vs. austerity. After a long period of financialization, accelerating as of the 1980s, the issue is much more complex, as debt “addiction” has grown.