Can we establish a link between the contraction in the number of installment loans granted and the financial health of national and European stock markets? A quick update on a burning current issue.
A worrying observation
The financial crisis that we are experiencing in Europe began in 2008 and was directly exported from the subprime crisis in the United States. Subsequently, awareness of the abysmal evolution of sovereign debts in Europe considerably contributed to tarnishing a financial activity that had been flirting with recession for months.
A consequence quickly appeared: the financial health of the banks deteriorated and so did credit activity, with the corollary being a much less generous loan and credit policy.
The causes of the financial crisis
The severe and lasting crisis which is raging and undermining the financial health of Europe has essentially three origins:
- The export of the subprime crisis to the United States.
In short, US banks granted mortgage loans to indebted households and in return speculated on the upward trend in the market value of real estate. Unfortunately, this disconcertingly naive scheme collapsed like a house of cards as soon as the real estate market turned around, producing the opposite desired effect; - Financial speculation by European banks buying sovereign debt from seriously indebted southern European countries.
The banks helped to burden the southern states by granting them large loans. The other side of the coin is that certain countries such as Greece, Ireland and Portugal have made partial defaults and Europe has had to agree to debt write-downs with the corollary of bank failures; - Endemic bad governance in states in Europe, across the Atlantic and even in Asia – with Japan in the lead.
States spend much more than they collect in tax revenue. The well-established welfare state model in Europe is shaking on its foundations and social benefits must be reduced.
Your money and the stock market
Between 2008 and 2011, the health of global stock markets was catastrophic. The returns on investment have been largely negative. Both stocks and corporate bonds suffered severely. A golden rule for small investors: only invest in what you don’t need.
And now what am I going to do?
It appears that the sovereign debt crisis in Europe is now under control. Banking activity is slowly picking up and stock market assets are slowly but surely moving upwards. Now is the time to invest for the most daring.
Banking stocks, sidelined for so long, are gradually regaining color. Credit activity will undoubtedly still be very precarious in 2013 but 2014 should present itself as the new dawn of credit activity.
