Inflation is not bad for everyone, just ask the debtors

Inflation is agony. It costs more on dinner, fuel, and lodging – you can’t even buy a used car without watching the savings fizzle out as prices keep rising on that creaky old Subaru that would have been a bargain months ago will.

But there’s a thin silver lining: inflation has started to ease the debt burden on the people who owe money, a small favor that anyone with a mortgage or student loan can be thankful for.

Get ratio

New data from the Bank for International Settlements show that the share of household and corporate debt in economic output fell the most in many industrialized countries in the second quarter.

This is because of the tremendous economic growth resulting from the lockdowns, coupled with rising inflation rates, which together make debtors’ liabilities shrink compared to the size of the economy as a whole. This has significantly reduced the share of private debt:

  • Household debt fell in the US from 80.4% of GDP to 79% of GDP in the second quarter, from 62.5% to 61.2% in the euro area and from 67.9% to 66 in the euro area, 5% G20.
  • Businesses benefit from the same terms – total lending to the U.S. non-financial sector fell from 165.8% of GDP to 161.3% in the second quarter, and earnings rose 37% year-over-year, according to data last year Month shows the commercial department.

Of course, almost all debt levels remain higher than they were at the beginning of 2020 because low interest rates and government incentives have made it easier to borrow.

Excessive expectations: If central banks take steps to contain inflation by raising interest rates – which happened Thursday in the UK and Norway – the spoils will be shifted to the big banks. Higher interest rates would allow them to make billions by asking for more credit – Wells Fargo and Bank of America, for example, both said they could generate over $ 7 billion in income with a 1% short- and long-term rate hike .

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