Tuesday, 28 October 2008

Household debt reaches monstrous levels

Why are Brown and Darling so desperate to revive bank lending to households? A quick look at the outstanding stock of household lending quickly reveals the reason.

Bank lending to households now stands at about 88 percent of GDP. Thirty years ago, it was only 20 percent of GDP.

The UK economy has become addicted to debt. This huge surge in credit has kept up the illusion of growing standards of living. It has kept us consuming, while UK real wages have remained stagnant.

We have reached an impasse. Bank credit can not grow any larger. Household balance sheets are in deep trouble. Debt servicing costs are eating into disposible income and as the economy slides into recession, default rates are about to rise.

Brown and Darling are desperate for banks to turn on the flow of credit. However, if the banks were to buckle under the pressure from the government and begin a new surge in credit growth, household debt would rise further. This would only generate an even greater finanical crisis in the future.


dearieme said...

"There's a lot of money about" I used to think. It would seem that much of it was borrowed.

Anonymous said...

There is a very clear credit crunch in the 1990s. The strange thing is that the country lived to tell the tale.

Anonymous said...

There is a very clear credit crunch in the 1990s. The strange thing is that the country lived to tell the tale.

cws said...

I wonder whether we will ever return to a ratio of around 20 percent.

Nick von Mises said...

No surprise it sky-rocketed after (i) the collapse of the last link of fiat currencies to gold in 1971 and (ii) 30 years of the socialist post-war consensus finally wrecking the UK economy.

And to think Gordon just polled MORE popular

Anonymous said...

Nick Von Mises: "And to think Gordon just polled MORE popular"

Ah, the mob is very fickle!

electro-kevin said...

Panem et circenses.

A revival of 'boom' would ensure another Labour victory and time to complete their true mission.

For five years I have eschewed credit and my standard of living has fallen behind those of my contemporaries. It is, in fact, closer to my brother's who lives on incapacity benefit.

My immediate neighbours are also on benefits.

I gross 30% above the average wage.

Anonymous said...

ek: "A revival of 'boom' would ensure another Labour victory"

I can't see how in a million years they could possibly revive the boom. It's gone, public sentiment has radically changed, and will not return for a long time.

ek: "For five years I have eschewed credit .."

Yep, I have been credit averse since the last Tory property boom. These type of experiences make a big impression.

Markbaldy said...

Of course they want to get the money flowing... by borrowing, what else !
We have very little in the UK that we can sell to maintain the current standard of living so it is a desperate attempt by Brown to
re-ignite the "boom" times whilst he is in office.
It is a bit like being made redundant then borrowing a shed load of dosh then buying a new Range Rover, a 5 bed detached house in Berkshire, inviting friends around for a posh dinner and pretending everything is well.
Anyone with an IQ greater than 2 will realise that it is just not sustainable and the eventual payback will be very painfull... by that time, Brown and Darling will be out of the frame and some poor other sod will get the blame !

Anonymous said...

What will happen if interest rates in the UK are cut to zero?

yudansha said...

Look at Japan