December 4, 2020

Carlos Balado: Some uncomfortable data


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The trade-off between health and the economy is false, but is a commonplace used in political propaganda. They are united and inseparable. It is like asking, what is preferred in a coin, heads or tails. They would be asking him to choose, to bet, and something similar underlies when it comes to facing health and economy. There is no possible choice because there are some uncomfortable data that are often left out when analyzing priorities.

First, the economy cannot be frozen, mostly because debts keep pace, with or without Covid-19. Second, as revenues decline, due to the economic impact of Covid-19, households must balance debt repayment with reasonable levels of consumption.

From here, the obstacles that must be overcome begin and that, as the canons mandate, is the first point that must be included in a Strategic Plan. A plan that citizens of all countries are waiting for to answer the also uncomfortable question of what do I pay my debts with.

Household debt worldwide was around 40 trillion US dollars by the end of 2019. The ratio of household debt to GDP (debt ratio) peaked at the time of the Great Financial Crisis (GCF) and, after declining in the first half of the 2010s, has remained more or less stable since 2015.

Although, although the debt ratio varies both between countries and over time, the composition of aggregate household debt is very similar, with mortgages accounting for the largest share. Since the Great Financial Crisis, mortgage debt exceeds 90% of total debt in Germany, France, Spain, the United Kingdom and the United States.

According to data from the Bank for International Settlements in Basel, within a country, the proportion of mortgage debt varies significantly between households with different levels of wealth.

The average net wealth of households in the OECD is $ 90,570 and the higher this is in a country, the higher the mortgage debt. In contrast, the lower it is, the greater the debt on auto, consumer and student loans.

The household liquidity buffersIn other words, their ability to continue meeting their financial commitments while maintaining reasonable levels of consumption, in the face of loss of income, are key to their financial recovery.

In Canada, France and Spain, households would have almost a year of coverage and in the United States and Australia they could cover less than a year, provided that households faced a scenario of reduced income by reducing consumption to a minimum level, before beginning to fall behind in paying their debts.

With OECD wealth inequality data it can be seen that households with few resources live by day, their liquidity buffers fall below annual subsistence consumption (half of median income) in all countries except France, Korea and Japan.

In the case of Spain, where the average net income is $ 35,443, households in the middle 20% of the distribution could cover losses for two years before defaulting on their debts, but those included in the bottom 20% of the distribution, would be able to cover a loss of income, derived from an increase of 1.5 in the unemployment rate, for six months.

The resilience of middle-wealth households, or what in political-electoral terms is called the middle class, is very important to balance the economy, their debt is very high and they are more vulnerable in the countries that are most exposed to it. economic shock, as is the case in Spain.

Debts are contracted because you have a job, your job may disappear, or even your health, but debts do not; That is the core of the problem that governments face: that it is possible to work without mortal threats to health is their responsibility and cannot be passed on with a frown to the citizens.

Carlos Balado is CEO of Eurocofin

Carlos BaladoCarlos Balado

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