One of the (many) reasons the current recession will be longer than the one in 2008-2009 is the behavior of credit. Growth of the credit stock started to slow in early 2011, and has been stagnant in 2015, with lending by both private and public banks decelerating. The flow of new loans to both businesses and individual is contracting, with new real estate loans in free fall.
Greater risks (rising unemployment, worsening recession and higher interest rates) are prompting banks to widen their spreads. Simultaneously, household debt service in relation to augmented real income (labor and social security income) is growing significantly. Against this backdrop, the default rate on personal loans has only not risen (it has been holding steady at 5.4%) due to banks’ extreme caution in making new loans.
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