The simplest explanation for the growing household debt relative to GDP is obviously the very low interest rate regime the whole world has been living under since the financial crisis of 2008. When interest rates go down, you'll have more borrowed money chasing after the same housing stock. It's the same story everywhere except that it isn't quite as bad in Finland as in the other Nordic countries. By far, the largest share of household debt consists of mortgages.
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This is always the case for household debt, is it not?
There is an over extension of debt driving a bubble into the housing market that will eventually burst. Not only this, the way they are getting people into the housing debt by offering interest only for two years and no need to pay monthly service fees for the same period, is going to trap many into lifestyles that they can't afford under "normal conditions" let alone if there is a rate rise or, continued economic hardship and compromise.
Yes, and I do not think it is a case of people primarily taking on debt to buy consumer goods. I also do not think people were selling their summer cabins to fund lifestyles they wouldn't otherwise be able to fund but because of the fact that summer cabins are more of a boomer thing. A lot of boomers were born in the countryside. When generation X and Millenials inherit them from their boomer parents and when they sell them, it is done for the most part because fewer people in our generation are interested in these mosquito infested labor camps that are a drain on the finances for as long as they are owned.
I think the problem is the fast pace of urbanization in the decade after the financial crisis. I think it was largely driven by the concentration of jobs into the largest cities. Offering interest only for two years was not some sort of scheme get people into too much debt but simply a way to compete for loan customers. In fact, they did and still do a stress test for each customer where it is assumed that the interest paid on the mortgage is 6%.
The crux of the problem are the interest rates that are too low meaning that they do not properly reflect the value of time. This is the case because of the deep structural problems in the entire developed world forcing monetary policy to plug the gap between government obligations and tax payers' ability to cover all the expenses. Shrinking work forces are one of the key reasons for this. What the money printing does is keep interest levels artificially low while growing the inflated valuations of properties among other things like cryptocurrencies. Without the abnormal macroeconomic environment we're living in Bitcoin would never have gained any traction and neither would Steem and hence Hive wouldn't exist.
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In bed now, but this interesting.. Look at Max view.
https://tradingeconomics.com/finland/consumer-spending#:~:text=Consumer%20Spending%20in%20Finland%20averaged,the%20first%20quarter%20of%201975.
Also, the links toward the bottom, where deficits are widening, exports falling, business production down... Consumer confidence up.
Ah, the effects of the corona situation.
The fact that consumer confidence is up is a blessing in this situation. Otherwise the situation would be far worse. It seems that people are expecting the situation to improve.
Blessing for who? It is going to crash hard.
Now would be the absolute worst possible moment for those consumers who have job security to start saving money aggressively. That would destroy the economy.
A national economy is not like a private household. A country does not retire, for example.
The cessation of international tourism has been a disaster for Lapland in particular. If domestic tourism were to come to a complete halt, it would only make things worse from a financial perspective.
A wave of bankruptcies can destroy production capacity causing long-lasting damage. Any austerity measures should be taken post-corona when the economy is on a surer footing.
Who do you think has job security at this moment and, what would you think about the people a year from now who thought they had job security, spent freely and went into debt and then lost their job?