Tuesday, November 15, 2011
Loan growth surging, but incomes are not keeping up
Total loans and leases have increased by over $200 bln since the end of March, so private credit expansion is replacing falling government spending. That’s good because it’s keeping the economy supported, but it can only go so far as incomes have to be able to support the expanding debt service. The problem is, incomes have been falling.
Take a look:
But personal income has started contracting...
So it doesn't look like this is sustainable for very long.
"Horizontal money" (private credit creation) needs income to sustain it.
"Verticle money" (the government's fiat) adds to income.
It's a lot better to have the latter than the former, at least during times like now.