Economies need money. Without it, businesses and households stop. Just ask Spain. It’s further along in the “no money” race than most. Unemployment is 25 percent, credit is drying up, and the government is supposed to cut its deficit an almost unthinkable amount.
It’s a vicious circle. When there’s not enough money, the economy collapses. And when the economy collapses, nobody wants to take out loans. Which reduces the amount of money even further. That’s why falling European private loan growth is so concerning. Instead of borrowing more, people prefer to stuff whatever money they have under the mattress. Except nowadays we have a new name for mattresses. We call them “government bonds”. That’s why the yields on U.S., U.K. German and a host of sovereign bonds are at all-time lows.
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