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Weekly Updates

  • Bank lending standards have been tightening for some time on both sides of the Atlantic. Recent banking sector problems might accelerate this tightening, as risk officers are seduced by liquidity, and slow lending.
  • Over the past two years, real wage growth in Europe, the UK, and the US has been very negative. But consumers stabilized their spending by using savings and credit.
  • Recently, consumption has been supported by unconscious borrowing; consumers who put their grocery bill on their credit card, and then find at the end of the month they cannot pay off the debt. If spending exceeds income by USD 200 per month, consumers will need to borrow (and raise their credit limit) an additional USD 200 every month. Interest rates have little effect on this borrowing—consumers are not thinking of Fed Chair Powell at the checkout. But if the credit card is declined because of tighter lending standards, the consumer has no choice but to buy less.
  • The economic impact of such a tightening is likely to be far less than in 2008—overall household balance sheets are stronger, and credit has driven spending for a shorter period. But the pain of credit tightening is likely to fall hardest on lower income groups, increasing inequality.

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