Others have pointed out some of the flaws in this reasoning, but I want go over some of the obvious critiques again:
1 & 2) There will be no "full stop" on lending money to poor people. If you're a bank and you're managing say $1B, some percentage of that is allocated to high risk loans. Your job is to make money from lending money, and there are only so many borrowers. Banks don't lend money to poor people out of altruism, but because they have to make enough money from interest to at least beat inflation. They'll continue to make high risk loans until they have some new pool of borrowers to replace them, albeit at higher interest rates now.
Most of the people relieved by this cancellation didn't have a very good chance of being approved for a loan anyway. Now their chances will be somewhat reduced, but not completely eliminated.
3) The $31MM didn't disappear, it was effectively removed from the balance sheets of the debtors. If some of them eventually get jobs and build assets, that money will reappear in the economy but be distributed to different businesses. Instead of the banks receiving that $31MM from their paychecks, they'll spend it on food or gas or whatever. Probably still a net loss, but not of the whole $31MM and instead some fraction of it.
4) The concept of moral hazard is a real thing, but it's effects on any given economy vary wildly. In general, most people don't think "Well the government bailed us out once, so I'll borrow way more than I can afford and just hope that they do it again.". It's possible and I can understand why someone would believe it to be a problem, but it's far from being a law of physics or even economics.
In short, the Croatian government and their finance ministers/advisers probably aren't stupid. They have actual data and a knowledge of their own people and situation to go on. They aren't just playing armchair economist. And though I couldn't name one of them, I'm willing to bet that they thought this move through. Doesn't mean that there won't be any of the dire consequences that you've predicted here, but they've probably weighed the odds more carefully than you think.
> In short, the Croatian government and their finance ministers/advisers probably aren't stupid. They have actual data and a knowledge of their own people and situation to go on. They aren't just playing armchair economist. And though I couldn't name one of them, I'm willing to bet that they thought this move through. Doesn't mean that there won't be any of the dire consequences that you've predicted here, but they've probably weighed the odds more carefully than you think.
Or they're a bunch of politicians trying to score a win in the next election, by any means necessary.
1 & 2) There will be no "full stop" on lending money to poor people. If you're a bank and you're managing say $1B, some percentage of that is allocated to high risk loans. Your job is to make money from lending money, and there are only so many borrowers. Banks don't lend money to poor people out of altruism, but because they have to make enough money from interest to at least beat inflation. They'll continue to make high risk loans until they have some new pool of borrowers to replace them, albeit at higher interest rates now.
Most of the people relieved by this cancellation didn't have a very good chance of being approved for a loan anyway. Now their chances will be somewhat reduced, but not completely eliminated.
3) The $31MM didn't disappear, it was effectively removed from the balance sheets of the debtors. If some of them eventually get jobs and build assets, that money will reappear in the economy but be distributed to different businesses. Instead of the banks receiving that $31MM from their paychecks, they'll spend it on food or gas or whatever. Probably still a net loss, but not of the whole $31MM and instead some fraction of it.
4) The concept of moral hazard is a real thing, but it's effects on any given economy vary wildly. In general, most people don't think "Well the government bailed us out once, so I'll borrow way more than I can afford and just hope that they do it again.". It's possible and I can understand why someone would believe it to be a problem, but it's far from being a law of physics or even economics.
In short, the Croatian government and their finance ministers/advisers probably aren't stupid. They have actual data and a knowledge of their own people and situation to go on. They aren't just playing armchair economist. And though I couldn't name one of them, I'm willing to bet that they thought this move through. Doesn't mean that there won't be any of the dire consequences that you've predicted here, but they've probably weighed the odds more carefully than you think.