There is certainly a correlation between increasingly free trade and private debt, but I doubt the relationship is a causal one. For one thing, the decline in private debt which began in 2008 was neither caused nor echoed by a similar decline in free trade.
The economic logic also doesn’t support a causal link. Private debt is mostly linked to big-ticket items such as homes and cars. Free trade in goods is mostly neutral on the former and negative on the latter with regards to debt. While the free movement of peoples would tend to increase debt, more people being able to take out more loans, that’s not going to alter the debt per capita rate much, for obvious reasons.
One of the major components of private debt is education-related debt, and that has nothing to do with free trade. So, I would say there is no meaningful link between free trade and private debt.
Disagree, because immigration. The point of taking on personal debt is social competition, and free movement of peoples means higher income stratification and disparity. Therefore more competition, therefore more debt.
Another commenter jumped in to back me up with his experience:
My day job is a loan officer for a major chartered bank, and I can tell you from experience, “free trade” has caused a lot of personal debt for many of my clients. The number one reasons people borrow are as follows:
1. Education – when you factor in there’s absolutely no individual collateral for this type of lending, from a debt to service ratio perspective, people lend more for “education” than anything today, even more than housing. As already pointed out, the free movement of people generated from free trade is causing a lot of demand. Jobs requiring less education are being shipped out, but what a lot of people don’t realize is that isn’t the primary source that’s driving the demand. Immigrants are driving the demand for education. The grand majority of people who call me up asking for education loans in the 100K+ range are immigrants in fields like engineering and health care. Quite often, their 3rd world credentials don’t meet the cut when it comes to being a doctor, so they have to retrain. So not only are the immigrants driving down wages through increased supply by coming here – they’re also directly contributing to education costs by having to retrain to meet regulations. Hence, overall personal debts for everyone.
2. Housing – free movement of people coming from free trade has put so much pressure on housing stock in the West. Simply put, we’re importing lemmings faster than our technology permits us to build housing to meet the demand. As a result, housing prices have skyrocketed, causing people to take on more debt to get entry into the housing market. While you could argue it balances out due to increasing equity – this is a Ponzi scheme. You can’t create more land. There’s a real limit as to how many people you can fit into one geographical location – free trade doesn’t respect this law of nature at all.
3. Consolidating other debt – In a world were the debt scales get higher and higher because of stressing demands due to immigration (free trade), suddenly paying that 2000$ fine to break your contract with a previous lender makes sense for a 0.5% decrease in interest rate. And to make matters worse, people often pay the fine by taking on more debt. See where this is going?
4. Moving expenses – This is probably a surprise to most people, but this is starting to become an increasingly popular reason people borrow. In this “free trade”/”free movement” world, people have to move where the jobs and promotions are. Unfortunately, moving is expensive. If you’re say, lower middle class, and need to move half way across the country to get your first solid middle class job, chances are you’re going to need to take out a loan.
5. Travel – thankfully, most white people, young and old, still traditionally save up for a vacation. Unfortunately, I can’t say the same for the immigrants. Did you know that your average middle class Canadian immigrant travels back to his/her home country an average of FIVE TIMES in a year? So much for loyalty! All of this traveling increases the demand for personal lending once again. And it’s all related to the free movement of people. Even the most staunch Muslim who swears against usury will take out a loan if it means it’s the only way he can visit his million and one inbred cousins in Qatar come Ramadan.
6. Cars? Cars? Auto loans are old school. A distant sixth. Young people and the immigrants don’t buy cars. Old people, based on deteriorating health conditions, probably shouldn’t buy cars.
So if you’re read this far, this is just an “on the ground” view of personal lending from the only white guy in a sea of Jewish and Chinese bankers. Jewish and Chinese bankers that alas, wouldn’t even be here in the first place if not for “free trade.” To say “free trade” may indirectly cause personal debt is an understatement. I would go on to say the goal of free trade is to BURRY EVERYONE under the shekels of personal debt!
So that was pretty cool, and I got a post out of it.