Disposable Income & Ability To Service Debts Vs Monetary Prolificacy

[lufc]

We must be nearing some kind of inflection point now ... The average consumer in a consumption based economy must be very close to breaking.

I thought we might have had a few problems with unleaded @ £1.35 by now but hey ho .

In other words, how long before non-discretionary inflation becomes more expensive than debt servicing costs in an ultra loose monetary policy enviroment to the average debt ridden consumer ??????

[UNSHURE]

In other words, how long before non-discretionary inflation becomes more expensive than debt servicing costs in an ultra loose monetary policy enviroment to the average debt ridden consumer ??????

It's a question that is on my mind too. I had to queue at the petrol station for about ten minutes this morning. There seems to be more cars than ever - many of them SUV's.

I think that 0% credit deals on credit cards has a lot to do with it. The punter just moves at the end of the 0% term. I can't see why banks would take on a customer who wants to transfer from another 0% deal. What are the banks making out of it?

Nearly everyone in front me in the supermarket queue pays with a credit card. I wonder how many of them settle the balance at the end of the month?

[pilchardthecat]

how long before non-discretionary inflation becomes more expensive than debt servicing costs in an ultra loose monetary policy enviroment to the average debt ridden consumer ??????

Only when they've cut all the discretionary spend, or lost their jobs.

I don't think we are anywhere near that point on the national scale you are implying. If petrol is too expensive, cut the Sky TV sub. Weekly shop too much? One holiday this year instead of 2.

[winkie]

Only when they've cut all the discretionary spend, or lost their jobs.

I don't think we are anywhere near that point on the national scale you are implying. If petrol is too expensive, cut the Sky TV sub. Weekly shop too much? One holiday this year instead of 2.

...looking back to the 70s from what I can remember, people with the average job bought petrol at £1 or £2 a time, syphoning tanks was common with a plastic tube and a good suck.....there was no sky tv, no mobile phones, very few had even one holiday let alone two plus a few weekends away.....when shopping people planned their meals in advance to match the money available to spend, then drew up a shopping list trying not to deviate from it, no impulse purchases like we have today....when it was gone it was gone.

Makes you wonder where all the extra cash has come from and how long they can keep dispensing for.

[GinAndPlatonic]

...looking back to the 70s from what I can remember, people with the average job bought petrol at £1 or £2 a time, syphoning tanks was common with a plastic tube and a good suck.....there was no sky tv, no mobile phones, very few had even one holiday let alone two plus a few weekends away.....when shopping people planned their meals in advance to match the money available to spend, then drew up a shopping list trying not to deviate from it, no impulse purchases like we have today....when it was gone it was gone.

Makes you wonder where all the extra cash has come from and how long they can keep dispensing for.

Its gone back to the future.

[winkie]

Its gone back to the future.

....two steps forward, one step back.

[goldbug9999]

Makes you wonder where all the extra cash has come from

MEWing. I would think that a large proportion of households have been relying on "income" from their house appreciation.

[winkie]

MEWing. I would think that a large proportion of households have been relying on "income" from their house appreciation.

Who said their house appreciated?.....a lender that wanted a borrower to borrow to make a profit from......where did the lender get the money to lend? it was not from the depositors the deposits were/are not there.

[aa3]

I've thought about this question as well. My feeling is it is unknowable exactly where the brick wall will be. Just one month we will hit it, and it will be very noticeable.

pilchardthecat makes a very good point that there are some things people can cut out like vacations which you wouldn't see at the ground level. And if you look travel firms are going bust and the survivors are reporting massive falls in the amount of people travelling.

Another thing that went down early was the shoe chains. They survived based on selling £300 women's boots and shoes.. when that went away, they collapsed. Again you wouldn't notice that.

Yet another aspect is people do not upgrade houses if they are squeezed. That shows up in dramatically lower home sales, as less shifting is going on.

But all these things have a cascade effect, which is why I feel it is unknowable exactly when it will hit. Look at how the lower home sales is leading to so many estate agencies going under.

[LJAR]

My feeling is it is unknowable exactly where the brick wall will be. Just one month we will hit it, and it will be very noticeable.

I am in the same position - I don't think we can know or predict when or even if disposable income will run out.

The only difference is I don' t think it will be a wall, more of a hill that just gets steeper.

Ultimately, we only NEED to pay for food, water, shelter, energy and clothing.

The rest we can do without - e.g. I am going to start cycling to work instead of driving - should save me £20 per week. I can cut my grocery bill by being careful, I can stop taking holidays, not go to the cinema sell old tat that I no longer need.

All sorts of things will happen before we get to the stage of there being no more discretionary spend.

[Si1]

I am in the same position - I don't think we can know or predict when or even if disposable income will run out.

The only difference is I don' t think it will be a wall, more of a hill that just gets steeper.

+1

[needsleep]

Who said their house appreciated?.....a lender that wanted a borrower to borrow to make a profit from......where did the lender get the money to lend? it was not from the depositors the deposits were/are not there.

You're right. Most of it didn't come from depositors.

[interestrateripoff]

The plan is we find the end of the rainbow and the pot of gold takes care of all of our problems.

At some point income will stop, unless you are heavily indebted you will have spare cash. You might do slightly less but at the minute it won't be noticeable. Those with children will be hit first as they have higher out goings as more mouths to feed. A couple living together will be fine providing they aren't over extended with debt.

[onesmallstep]

don't forget benefits go up with inflation, get on benefits and your safe.

[campervanman]

don't forget benefits go up with inflation, get on benefits and your safe.

Not any more they don't unless you really do believe that CPI is an accurate measure of UK inflation.

[eightiesgirly]

Judging by what Mr. EG tells me from his mates, most breate a sigh of relief when it's payday as the car is running on fumes by then.

I don't think we are that far away. Paycheck to paycheck.

I've noticed more pawn shops, payday loan places. Cash generator has more Wii's than Argos. No one can have any gold jewellery left.

Granite worktop business ain't worth jack and all the middle class. per una clad lunch ladies are buying meat and fish in the local market instead of M&S.

[OnlyMe]

Already happening,

http://www.telegraph.co.uk/finance/economics/8440258/British-business-endures-toughest-quarter-in-two-years.html

British business endures toughest quarter in two years

Britain's quoted companies have endured their toughest quarter of trading since the recession, with the number of profit warnings reaching a two-year high in the first three months of the year, Ernst & Young warns this weekend.

[miko]

...looking back to the 70s from what I can remember, people with the average job bought petrol at £1 or £2 a time, syphoning tanks was common with a plastic tube and a good suck.....there was no sky tv, no mobile phones, very few had even one holiday let alone two plus a few weekends away.....when shopping people planned their meals in advance to match the money available to spend, then drew up a shopping list trying not to deviate from it, no impulse purchases like we have today....when it was gone it was gone.

Makes you wonder where all the extra cash has come from and how long they can keep dispensing for.

Well lets look a bit deeper , I grew up in the 70s like that and so did most around me . One adult worked and supported themselves another adult and 3/4/5 kids that was very common. Today in most working house holds two adults work and support two kids , that is one adult supporting just themself and one kid. That is where the extra money has come form .

There were no mobile phones and sky tv but the stuff in the house back then was much more expensive . Fridges , freezers, carpets, tv's , beds ect have all come down in price . Just one example when we first got a colour tv it was mid 70's and cost £350 , to rent one was £90 per year . Today a better TV is only £200 so in real terms the tv has come down in cost in a massive way.

The other side of the coin is the housing costs they have risen way way beyound what they were . Some one who bought in the 60's and started a family in the 70's would have seen their mortgage almost wiped out by wage inflation by the time they had a mortgage a few years. If they did not own a home they got a council house at very low rents.

Now that has all changed apart from those who bought pre 2000 housing costs have risen and risen hence the need for two wage earners . We have been through a long peroid where wages rose , interest rates fell and credit was cheap . That is all coming to an end now as basic essential costs rise , wages stagnate and the credit has been withdrawn and needs to be paid back .

It will be interesting to see what the average family will be living like in another 10 -15 years. Will it still be normal to have 2 wage earners ? will house prices have dropped to make a family home avaliable at a reasonable price. Will food be a massive amount of the budget ? how many more cheap gadgets will we have ?

Everything changes with time some things go up in real price some come down none ever stay the same it will be interesting.

[Fishfinger]

...looking back to the 70s from what I can remember, people with the average job bought petrol at £1 or £2 a time, syphoning tanks was common with a plastic tube and a good suck.....there was no sky tv, no mobile phones, very few had even one holiday let alone two plus a few weekends away.....when shopping people planned their meals in advance to match the money available to spend, then drew up a shopping list trying not to deviate from it, no impulse purchases like we have today....when it was gone it was gone.

Makes you wonder where all the extra cash has come from and how long they can keep dispensing for.

Siphoning tanks only really happened in '73 with the oil shock. That's when lockable petrol caps came in,

Lack of money was due to -

1) Generally one breadwinner

2) Basic rate tax was 30%

3) Interest rates/inflation were 10% +

4) Cars were horrendously unreliable and expensive to maintain (Austin 1100 were rust buckets within 2 years!)

5) There was no China with export deflation on goods.

6) Plenty of cartels to rig prices (ie the Net Book Agreement)

7) Lack of choice/competition and information on prices - never underestimate the power of the web!

8) Lack of credit due to regulation. You had to have an interview with bank/building soc manager for a mortgage. You could only take £100 out of the country due to exchange controls!

[miko]

Siphoning tanks only really happened in '73 with the oil shock. That's when lockable petrol caps came in,

2) Basic rate tax was 30%

3) Interest rates/inflation were 10% +

Basic rate tax was 33% but NI was only 6.75% and in real terms tax free allowances were higher plus there was married mans tax allowance and tax relief on mortgages . So today the income tax bill is probley higher than back then , don't be fooled by the head line rate.

Interest rates hit 15% twice and inflation hit over 20% in more than one year . Dependent on your situation those two could be a good thing . Suffering a few years at 15% on a mortgage was hard , however after a few years of high wage increases the mortgage was almost wipped out , hence the baby boomers having it so good.

Edited April 10, 2011 by miko

[Guest The Relaxation Suite]

Makes you wonder where all the extra cash has come from and how long they can keep dispensing for.

I saw an article the other day (that I posted on) about the fact that a lot of Australians are now raiding their supers to pay their home loans. So that's where some of th ecash is coming from - future pension funds. When I think about all the trouble and effort and difficulty and irresponsible behaviour that people are going to just to prop up an insane housing bubble it makes me really angry.

Edited April 10, 2011 by Tecumseh

[miko]

I saw an article the other day (that I posted on) about the fact that a lot of Australians are now raiding their supers to pay their home loans. So that's where some of th ecash is coming from - future pension funds. When I think about all the trouble and effort and difficulty and irresponsible behaviour that people are going to just to prop up an insane housing bubble it makes me really angry.

There have been wispers of that being allowed to happen over here as well. People being able to take lump sums out of their pension pots to pay off mortgages they are struggling with . Watch this space.

Edited April 10, 2011 by miko

[eightiesgirly]

I saw an article the other day (that I posted on) about the fact that a lot of Australians are now raiding their supers to pay their home loans. So that's where some of th ecash is coming from - future pension funds. When I think about all the trouble and effort and difficulty and irresponsible behaviour that people are going to just to prop up an insane housing bubble it makes me really angry.

Ah don't get angry, really bad for the blood pressure. It will all turn full circle, it always does.

[Guest The Relaxation Suite]

Ah don't get angry, really bad for the blood pressure. It will all turn full circle, it always does.

LOL about blood pressure - or should that be cry out loud? This circle is turning pretty slowly though, don't you reckon?

Interesting about UK pensions as well, Miko. The Reserve Bank has been increasing rates in Australia and also as you probably know the house prices in Aus are at least as bad as the UK, as an average anyway. I mean if you're happy to live an hour out the city you'll get an acre and four beds for 250k sterling on current rates or 160k sterling at the normal exchange. The rate rises are what's forcing these people to take money out the supers I guess. RBA kept rates on hold last couple of times though so who knows where this is going?

I ping-pong on this issue as some here know, but I am about ready to cave and buy, but not sure which country. Even France is incredibly expensive now - Aquitaine for example is pushing 300k euro for 3/4 beds and an above ground pool. Just don't know any more. Wait or buy? Buy where?