DEBT, private credit .. drivers of boom-bust process & financial crises? Ireland yet?

robut

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Hiding in Plain View: Why economists can’t see the obvious coming

Financial crises are, of course, far commoner than massive meteor impacts. But each new one catches us by surprise, not because they can’t be predicted, but because economists refuse to consider the obvious data that warns of their approach. We might as well have dinosaurs in charge of our economic observatories.

In a nutshell, financial crises are caused by a boom-bust process driven by private credit, which is created whenever banks create a new loan. Fluctuations in credit are of minor significance when private debt levels are low, but they are catastrophic when private debt levels are high. Banks create too much money during the boom—normally financing asset bubbles rather than productive investment—and when the boom ends, money creation gives way to money destruction in a bust that we call a financial crisis.
So .. spotted this article today via the twitter machine and it sort of slotted in to some recent personal events and thoughts around this.

The weekend just past we had to start looking at a new 3 piece suite because the old one is now way beyond it, we held off as long as possible knowing it would mean a relatively large enough expenditure ( actually larger than initially thought v last time we went shopping for such a thing ).

What we noticed when shopping around was that:

1. The idea of selling a bundled 3 piece suite seems to have disappeared - the 3+1+1 or 3+2 bundle offers of yore. Its now buy each part INDIVIDUALLY

2. DFS + many other furniture stores are pushing big time to buy your suite via finance over 3 years or so. Posters and cards everywhere. Especially as any decent 3 piece suite will now cost you €2500+ ( from our one day over weekend looking around )

Its 2 here thats relevant - Overtly Pushing Finance on Furniture all over the stores. Add PCP financing for cars. Huge house prices ( Did i see recently - An Post to offer 100% mortgages? ). Y'all could probably add more here, please do.

Are we .. In Ireland ... amassing large debt again via likes of above. And in small ways, add the Netflix thing of various things perpetually costing us "a monthly" fee .. but it all adds up? So Debt spread out over not one big thing THIS TIME ( v 2008 ), but many items?

Much of this via Credit Cards as everything goes cashless & online? This can cause a certain carefree-ness when paying via credit card, Paypal .. ah shur we will sort that later.

So is something Hiding in Plain View here yet?

OK the economy is going gangbusters .. in the main in larger urban areas? But are we so intoxicated by the good times being here again that we are ignoring a potential meteor heading our way?
 
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Burnout

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I have a life.

robut

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There will always be people who follow the herd and the Jones's and get in over their heads by buying overpriced stuff they do not really need. Those in charge and the banks do not want people living within their means as they get no money from them.

Re your suite, ever looked at having it remodelled with new stuffing, legs and covers.

https://www.apartmenttherapy.com/how-to-make-your-old-ugly-sofa-look-new-again-239750

https://www.remodelaholic.com/28-ways-bring-life-sofa/
Not for this one im afraid, gone too far. Plus it was a bad buy a few years back in our ignorance and sort of getting caught. Thanks anyway Burnout!

I was only bringing up the finance for furniture thing as I found it very overt and in your face. Got me thinking that more and more the push is on to get people into debt again. As to whether they will bite? Not sure. But many people are still in a place where wages are still stagnant since post last crash, so might be tempted as only avenue to even be able to buy such a thing as a replacement suite. Of course i know its a suite of furniture and some may say first world problems :D ... However its the overt in your face offers of finance / debt that got me to post this thread here
 

dizillusioned

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Don't buy anything until you can afford it outright. Has always been my motto. The ONLY thing I finance is my Mortgage and car. Everything else I save for. This has been an issue in so far as, I have little credit scores in the states. Even my bank manager says I need to borrow more. I refuse to do so. Once I have it I know I own it and take care of it, simply because I have worked my ass off to buy it.

Have never been one of those people who buy things on the "never never" I simply live within my means.
 

robut

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Don't buy anything until you can afford it outright. Has always been my motto. The ONLY thing I finance is my Mortgage and car. Everything else I save for. This has been an issue in so far as, I have little credit scores in the states. Even my bank manager says I need to borrow more. I refuse to do so. Once I have it I know I own it and take care of it, simply because I have worked my ass off to buy it.

Have never been one of those people who buy things on the "never never" I simply live within my means.
Plus 1 dizillusioned .. you and me same.

But it seems, as we learned from last crash many many others are not of this same mindset?
 

dizillusioned

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Plus 1 dizillusioned .. you and me same.

But it seems, as we learned from last crash many many others are not of this same mindset?
This wasn't a lesson learnt from the last crash, I have always been of that mindset. When everyone else was taking numerous holidays abroad, buying larger multiple houses and being given loans hand over fist from the banks, I didn't participate. When I was 12 I wanted a ghetto blaster. It was over 200 pounds and I saved up and saved up from jobs that I had, paying it off weekly until it was paid and then took it home... I still have that today. I remember how hard I had to work to buy that and it reminds me of all the sacrifice I had to make to get it....
 

gerhard dengler

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Many of the large consumer FMCG companies have obtained banking licences in recent years. This allows those companies to provide credit in order to sell more of their products to existing customers and new customers.

One company Siemens has created it's own bank, out of one of it's division Siemens Financial Services which used to provide leasing finance for business to business transactions previously.
 

statsman

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And use cash whenever possible.
 

dizillusioned

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And use cash whenever possible.
That is actually getting more difficult Stats. Nowadays, many larger purchases cannot be made with cash, even though a lot of people save cash. I remember purchasing a car a few years ago in Ireland and all the garages wanted loans/account transfers and credit cards and cash were not wanted, something to do with money laundering legislation and illegal activity. That mattress money concept that many were brought up with (me included) is gradually being gotten rid of, in favour of credit.
 

statsman

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That is actually getting more difficult Stats. Nowadays, many larger purchases cannot be made with cash, even though a lot of people save cash. I remember purchasing a car a few years ago in Ireland and all the garages wanted loans/account transfers and credit cards and cash were not wanted, something to do with money laundering legislation and illegal activity. That mattress money concept that many were brought up with (me included) is gradually being gotten rid of, in favour of credit.
I know. However, every car I've ever bought I've paid for by cheque, which is effectively cash.
 

Sync

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Mmmmm kind of but not in the way you mean. What you're highlighting is the problem resalers are having these days. So DFS for instance are now so tied in with medium term finance that a crash or even a tremor can send them under as the bad debts rack up.

But it's not a symptom of a problem in and of itself. And people that can't plan around their repayments in 2018 couldn't do it in 2008 or 1981 etc etc. The level of inability of people to do basic financial planning is still pretty shocking.
 

*EPIC SUCCESS*

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I know. However, every car I've ever bought I've paid for by cheque, which is effectively cash.
Also, any attempt to buy anything with large sums of cash makes the vendor look at you like you are Tony Montana.
 

dizillusioned

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Also, any attempt to buy anything with large sums of cash makes the vendor look at you like you are Tony Montana.
Funny you should say that... it was EXACTLY the sense I got the time I tried to pay for the car in cash.. felt like I was being told I was a mobster or something, instead of someone who saves his ass off to purchase something.

I do remember buying a car a few years ago with a credit card, that brought looks of "rich bastard", however, it was simply that the finance had yet to be approved and bought me time which was paid off immediately the finance arrived into my account......
 

gerhard dengler

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Mmmmm kind of but not in the way you mean. What you're highlighting is the problem resalers are having these days. So DFS for instance are now so tied in with medium term finance that a crash or even a tremor can send them under as the bad debts rack up.

But it's not a symptom of a problem in and of itself. And people that can't plan around their repayments in 2018 couldn't do it in 2008 or 1981 etc etc. The level of inability of people to do basic financial planning is still pretty shocking.
I reckon Harvey Norman could well be precarious too.
 

Gaston

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Similar situation when I bought the wife's car a few years back....a couple of car dealers thought I was some sort of criminal when I said that I wanted a trade in with a large cash sum. Indeed, I was being offerred less on the car I was trading in at those dealerships. Seemed to me that they didn't want my business unless I was willing to get into hock. In the end I went back to where I had bought the car being traded in to get anything approaching fair value.

Like others, I generally don't buy stuff until I have the cash. The wife & teenage kids being the only people who occasionally get me to break that rule slightly. :lol:

Thrift is not a concept that suits the conspicuous consumption drones or their cheerleaders these days. Mad Ted.
 

Fats_Portnoy

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That is actually getting more difficult Stats. Nowadays, many larger purchases cannot be made with cash, even though a lot of people save cash. I remember purchasing a car a few years ago in Ireland and all the garages wanted loans/account transfers and credit cards and cash were not wanted, something to do with money laundering legislation and illegal activity. That mattress money concept that many were brought up with (me included) is gradually being gotten rid of, in favour of credit.
also for safety, not having wads of cash in the sales office.
 

cabledude

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How anyone could but a couch on HP is beyond me. Make do with your own one for another 12 or 18 months and save the money.

All I have on credit is my mortgage and our main family car. Mortgage is a tracker and the car is on 0% PCP. Also have Credit Union loan that I used to fund my education. That is costing me 11% but it has really paid dividends in terms of employment and promotions.

Getting back to the OP, the idea of 100% mortgages becoming a 'thing' again is worrying.
 

hammer

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The good news Robut is

Household Debt is down
Household wealth is up
Household savings are up

I believe €100 billion + is sitting on deposit from households.

It cant only be Blueshirts that are doing well.
 

Franzoni

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Also, any attempt to buy anything with large sums of cash makes the vendor look at you like you are Tony Montana.
Not always a bad thing when buying a motor......:)
 


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