Does private debt matter?

[MTR]

This discussion was started as a continuation from another:











Given that private debt is issued through a bank who creates both the deposit and the loan together, then by your measure net debt would be 0 (as there is private savings in the system to match all debt)?

I think that private debt relative to the size of the economy is a pretty important measure to keep an eye on. There has to be a limit at which point the burden becomes too much and it tops out... whether we are there or not is another question?!

and who knows and who cares.... I am not worried about private debt, why would I?? personal debt is what matters

 

[Graemsay]

Germany and US debt is more similar but their performance during and after the GFC is very different, how do you explain the difference?

I'm not an economist, nor do I play one on TV, but I think the it's likely to be explained by the following factors:

• Germany didn't have a housing bubble, whereas the US did. Property in Germany grew at or around the rate of inflation, so there was less damage to household finances.
• Germany runs a trade surplus, whereas the US runs a deficit.
• The US dollar is the reserve currency, whereas Germany is part of the Eurozone, which restricts its ability to act as it doesn't have an independent monetary policy.
• Europe has more of a social security net than the US, which reduces the impact of recessions. The downside is that taxation is higher, which might curtail growth in the booms.
• The German financial sector is smaller as a proportion of its GDP than the US's.

 

[Intrinsic_Value]

Germany and US debt is more similar but their performance during and after the GFC is very different, how do you explain the difference?

Easy the FED holds (at least for the moment) the global reserve currency, the US$.

Germany is part of the euro.

Therefore US has more flexible public debt maneuverabilty.

If your point is that Germany has seemed less effected by the GFC then that's also easy.
It is more efficient that other countries using the Euro, but they all compete using the same currency. (under individual country exchanges, Germany's currency would have appreciated relative to the lagging European economies).