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Email this7:58 pm
August 9, 2014
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Find this online. I didn't read the report from Bank of International Settlements, which have link on the article provided here.
However, I think the conclusion from BIS is not surprising as savings are buffer toward any types of economic shock (ie: Reduction in export due to trading partner in recession, drop in housing price which reduce saving and impact construction, banking and realtor industry etc). Hence, many debt and lack of saving means default will rise rapidly to a high level and consumption will drop rapidly, implying a very deep recession, or even a depression.
6:45 am
August 4, 2010
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The quoted section of the BIS report is here. Note that the elevated "debt service ratio" flag assume a 250 basis point increase in rates. Given the economy, that seems unlikely soon, unless we are driven to defend the loonie against a sharply rising US dollar or something. The credit-GDP gap flag means credit has been increasing faster than GDP more than the historical curve, and has been higher than the BIS "warning" threshold for close to three years. Presumably a lot of this is mortgages and house prices not slowing down even with low GDP growth.
9:06 am
April 6, 2013
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I think the Better Dwelling article is exaggerating what the BIS report actually says.
The article says
Generally speaking, any time a country’s credit-to-GDP gap is higher than 10% for three years, a banking crisis follows (along with a recession).
The section of the BIS report NorthernRaven linked to actually says this in footnote #9:
9 In the past, two thirds of banking crises were preceded by credit-to-GDP gaps breaching this threshold [of 10%] during the three years before the event.
How predictive is this credit-to-GDP gap indicator? According to the BIS statement, the indicator did not signal in one-third of the previous banking crises. There's no statement about how often there is a banking crises after the indicator does signal.
If there's severe leg pain in 2/3 of the cases of certain cancers, it doesn't follow that having severe leg pain means one has cancer.
10:11 am
October 21, 2013
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I'm no economist, but it seems to me that in any situation there are factors which enhance and mitigate a given possibility, and that a thorough analysis of a particular situation would require much more detail. For example, our situation is not really comparable to US 200 for a number of reasons, and, on the other side, the world is a significantly more unpredictable place now than it was then and is likely to become moreso as climate change takes its devastating toll and some destabilizing political trends probably continue in a number of countries.
However, I thank Jon for bringing this to our attention. It's good to know what "they" may be thinking and to think about whether it's valid.
3:52 pm
March 12, 2017
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How predictive is this credit-to-GDP gap indicator? According to the BIS statement, the indicator did not signal in one-third of the previous banking crises. There's no statement about how often there is a banking crises after the indicator does signal.
Probably worth noting that the 1/3 of countries it didn't occur in were mostly heavily planned economies like China, Hong Kong, Singapore. We don't generally have politicians that move as swiftly (and without industry consultation) as they do in those countries.
Not saying we're heading for financial collapse next year, but with the amount of leveraged debt we have, we are heading for a prolonged deleverage.
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