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.
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