Europe faces Japan syndrome as credit demand implodes

The Telegraph ^ | 4/25/2012 | Ambrose Evans-Pritchard

[bruinbirdman]

Europe could be facing a Lost Decade like Japan's

Europe (minus Germany) looks more like post-bubble Japan each month.

The long-feared credit crunch has mutated instead into a collapse in DEMAND for loans. Households and firms are comatose, or scared stiff, in a string of countries.

Demand for housing loans fell 70pc in Portugal, 44pc in Italy, and 42pc in the Netherlands in the first quarter of 2012. Enterprise loans fell 38pc in Italy. The survey took place in late March and early April, and therefore includes the second of Mario Draghi’s €1 trillion liquidity infusion (LTRO).

The ECB said net demand for loans had fallen "to a significantly lower level than had been expected in the fourth quarter of 2011, with the decline driven in particular by a further sharp drop in financing needs for fixed investment." Demand fell 43pc for household loans, and 30pc for non-bank firms.

Mr Draghi told MEPs today that his three-year loans had at least averted a horrendous crunch. "Our LTROs have been quite timely and successful. I think buying time is not a minor achievement." He is certainly right about that. The mess he inherited from the Merkel/Sarkozy expropriations of bondholders in Greece, and the Trichet/Stark tightening of monetary policy was calamitous.

This slump in loan demand is more or less what happened during Japan’s Lost Decade as Mr and Mrs Watanabe shunned debt. Zero interest rates did nothing. The Bank of Japan was "pushing on a string" (though it never really launched bond purchases with any serious determination).

It is true that banks have slowed the pace of credit tightening, but they are nevertheless still tightening. "A banking crisis remains very much in play for much of the region," said David Owen from Jefferies

[e_castillo]

I think its called deleveraging.

[Jonty30]

So much money has been pumped into the system, that it’s going to take 20 years before the growth of the economy catches up with the supply of money.

If Europe had simply allowed the economy to right itself, they’d probably growing again, like Iceland is growing.

[The Working Man]

Europe (minus Germany) looks more like post-bubble Japan each month.

The long-feared credit crunch has mutated instead into a collapse in DEMAND for loans. Households and firms are comatose, or scared stiff, in a string of countries.

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My own take is this:

The population is growing older all of the time. Thus there is no longer the pressure to “Buy things” just because. That means there is less need to borrow for major purchases because they have already done so.

There is also little or no need to move with the older populace. In Europe if you have a job it’s nearly impossible to be fired from it or laid-off. If you don’t have a job then you are on the dole and therefore have no pressure on owning your residence as the welfare-state will provide that for you.

Public transportation is everywhere therefore only the “rich” need or can afford a new car and since they probably already own at least one and the quality of European autos is so high there is no need to buy a new one anytime soon if you already own one.

These are just a few of the things that come to mind but the bottom line is this: Why borrow money in uncertain times if your current needs have already been met. Only the need for consumables will be constant, food, some clothing, Medical, Electricity, water, etc.

[NoLibZone]

Socialism fails every time its tried.