Saturday, Apr 28, 2007
Long article: worth a read
bank of england: The role of household debt and balance sheets in the monetary transmission mechanism
Good graph of how debt levels are tracking HP much closer then in 1989.
The problem is much worse than in 1989.
Posted by sold 2 rent 1 @ 07:01 AM (258 views) Add Comment
4 Comments
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1. enuii said...
I like how the blue line trails the purple line and the runs in parallel with it from 2003 onwards. The conjunction of the graphs lines for the first time since it starts in 1983 in 2003 seems to indicate that house prices have peaked with low IR's and that all rises in price have been entirely funded by increased borrowings. Now interest rates are rising no amount of creative lending practices will be able to keep the market afloat and it would appear that the problem is now chronic and has been for the last four years or so.
A correction now could quite easily take house prices back to their 2004 levels!
2. confused76 said...
"Thus the growth in debt in recent years has been associated
with a substantial change in the distribution of debt as
middle-aged households (35–54 year olds) have tended to
borrow more, possibly to keep up with rising house prices,
while younger households (18–34) have borrowed less possibly
because they have not entered the housing market"
This is bad... how is debt going to be repaid?
It's a catch22 situation: if inflation stays low, interests stay low and principal is not eaten by inflation,
if inflation goes up interest rates go up and people default. Since debt is mostly with middle age, their career ladder is rather flat so salary increases are mostly inflation driven
3. Ticktock said...
Ref - It's a catch22 situation: if inflation stays low, interests stay low and principal is not eaten by inflation,
if inflation goes up interest rates go up and people default.
....So it might be a clever idea to fiddle the inflation figures in order to hide the inflating away of the debt, and the destruction of REAL currency value? I mean, nobody would ever know would they?
4. sold 2 rent 1 said...
TT,
Except the fiddle only works if the un-fiddled inflation rate is greater than the money supply growth.
If we say true inflation is at 10% (see shadowstats.com), it is still way behind M4 at 13%.
The Government needs to up their fiddling game to get it above 13% as whilst it is below that mark the problem is only getting worse.
Time is running out though. A crash in asset prices and a deflationary period may soon be on us.