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Bland Unsight

Lending To Individuals

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Every now and again I like to improve the shining hour by heading over to the Bank of England interactive database and looking at some of my favourite data series. My problem is that the big aggregate numbers like GDP don't tell you what individuals are up to and the detailed reporting of other important numbers tends to be a little myopic and doesn't give you a sense of a 5 year or 10 year trend. This remains my favourite - total outstanding lending to individuals.

No apologies for the horrible default formatting, (you can blame Office365 for the vulgar orange).

Lending+to+individuals.png

We have had for decades a monetary system where the money supply increases through the increase in credit money. That means you get some inflation and in the past we've usually had wage inflation too. Apologies for the really horrible graph, I couldn't find a better one, but this piece of comedy gold from the Bank of England 'education' pages shows that in the gold standard era you had inflation/deflation wobbles, but ever since the end of the Great Depression, as you'd expect with central banks using manipulation of the money supply to stave off deflation, it's been inflation only ever since.

I've got questions, not answers. Will credit start growing again, and if it does why and how? If credit doesn't start growing again then isn't any inflation of goods going to be driven mostly by the weakening of the pound leading to price inflation for things that we import (like oil, gas and food). Where is wage inflation going to come from? If you have no wage inflation but you do have price inflation driven by a weakening pound, where is it all going? The squeeze will reduce the ability of households to meet their debt obligations, which will mean that rates have to be held down, which means you have to print, which weakens the pound and stokes inflation?

[Edit: typo]

Edited by ChairmanOfTheBored

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My own view is that we have deflation of the money supply ongoing at the same time as price inflation.The former is related to the destruction of demand for credit caused by a vicious circle of decreasing money velocity and decreasing confidence.Price inflation,is a function of a weakening currency.

The chart in your OP goes to show that ZIRP has failed to create the demand for credit that Central Bankers had hoped for.In fact,it looks like incredibly bad value for money.

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Every now and again I like to improve the shining hour by heading over to the Bank of England interactive database and looking at some of my favourite data series. My problem is that the big aggregate numbers like GDP don't tell you what individuals are up to and the detailed reporting of other important numbers tends to be a little myopic and doesn't give you a sense of a 5 year or 10 year trend. This remains my favourite - total outstanding lending to individuals.

No apologies for the horrible default formatting, (you can blame Office365 for the vulgar orange).

We have had for decades a monetary system where the money supply increases through the increase in credit money. That means you get some inflation and in the past we've usually had wage inflation too. Apologies for the really horrible graph, I couldn't find a better one, but this piece of comedy gold from the Bank of England 'education' pages shows that in the gold standard era you had inflation/deflation wobbles, but ever since the end of the Great Depression, as you'd expect with central banks using manipulation of the money supply to stave off deflation, it's been inflation only ever since.

I've got questions, not answers. Will credit start growing again, and if it does why and how? If credit doesn't start growing again then isn't any inflation of goods going to be driven mostly by the weakening of the pound leading to price inflation for things that we import (like oil, gas and food). Where is wage inflation going to come from? If you have no wage inflation but you do have price inflation driven by a weakening pound, where is it all going? The squeeze will reduce the ability of households to meet their debt obligations, which will mean that rates have to be held down, which means you have to print, which weakens the pound and stokes inflation?

[Edit: typo]

And then your international creditors begin to question the good faith and ability you have to service your debts and start shorting the pound...

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That graph isn't seen enough. I heard Evan Davis on 'Today' on Sat making a comment about a painful deleveraging process being undertaken by households, I don't know what the logic behind that was.

Credit card balances have picked up some of the huge drop in other unsecured credit, and at much higher rates probably so it covers even more in terms of lost profitability from outstanding personal loan balances, which have halved in six years.

Personal loan balances have settled for now, but of course the relatively short terms of these mean that on average the book was probably loaned post-Lehmans. We seem to be at some sort of equilibrium for now but after six years of declining real earnings and price rises, the pool of potential borrowers must be thinned out, especially when borrower sentiment is considered.

Secured stuff, well koala_bear has evidenced large IO remortgaging pushing up average loan advances, FLS etc are designed to stop that grey line going negative, but it seems inevitable. I wonder to what extent banks are able to keep the plates spinning on credit card lending. Knock back a personal loan application and hey presto you might get the same spend at 3 times the rate on the cc card instead if the loan applicant is also a cc account holder, and broke. Cc balances have hit a record high and are growing at about 5%, the only bit to do so. Clearly the sums involved are small compared to secured lending (circa 5%), but perhaps ccs are keeping banks in business at the moment.

Tapped out borrowers with declining earnings and little disosable income after housing costs ain't much of a team to get the economy moving.

Edited by cheeznbreed

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That graph isn't seen enough. I heard Evan Davis on 'Today' on Sat making a comment about a painful deleveraging process being undertaken by households, I don't know what the logic behind that was.

It's my suspicion that nobody cares about this graph because the narrative of the economic 'science' paradigm points to the velocity of money when someone gets shirty about the expansion or otherwise of credit money. My instinct about this is that it's the same thing as the 'joker' who whilst not in the company of his brother brags about how knowledgeable his family is and says "Me and my brother know everything - what do you want to know?" and then when asked something that he doesn't know the answer to answers, "My brother knows that one."

What really catches my eye is the abrupt and seemingly resilient break from the trend post Lehmans. My instinct is that things really changed in 2008 and what changed was the willingness of the trade surplus exporters to fund our consumption on the strength of our stated intention to pay them back alone. It was a kind of "the game is up moment". As most of the population and most BBC/private mainstream media editors never understood that we were being offered credit on very easy terms by the people from whom we were buying all the stuff AND they were taking the profits of the trinket exchange and using that to give us easy credit to bid up house prices AND they were then financing the MEW so we could buy more trinkets. People didn't realise that the whole illusion of growth and wealth was predicated on the availability of MORE easy credit. In Ireland and Spain they built houses that they didn't need with all that easy credit. Because our planning regime stopped us doing that, we spent it on kitchens, wood block floors, foreign holiday, fancy cars and all that jazz. In a certain sense the UK response was more rational. Buy shit you want with the borrowed money - don't build houses that you don't need.

I know that Mervyn King has exactly no friends on these boards and that what he actually presided over does not suggest that he knew what was going on but I find that if you want an aphorism to nail the problem, then after the mess showed up, he delivered! In this case it's the "House prices are a matter of opinion whereas debt is real" quote.

The only way to deleverage is to pay back money faster than you borrow money. But if all your growth depended on borrowing against house prices and then taking rising house prices as a prompt to borrow more, then once your ability to grow credit disappears so will growth (and so will your ability to deleverage and anything faster than a glacial pace).

What I'm thinking at the moment is that people think that we are deleveraging because they know their standards of living are falling. But it's like a fat man who eats three cakes a day and gains 6lbs a week switching to a regime that allows him to keep his weight stable and then believing that he should be losing weight because he feels hungry. People can't reason properly - the suggestion that "If it's not hurting it's not working" is not logically equivalent to "If it's hurting, it's working". (God Bless mathematics and the logical iff!)

I think that we are just blowing an opportunity to do something right.

Shepherd Book once said to me, "If you can't do something smart, do something right."

It's all going to go to hell one way or another for the UK. Might as well choose our terms whilst it's still up to us and try to demonstrate to the generations that have to pick up the pieces that we understood the distance between what we wanted to do and what we did. It won't play like that, but its nice to think that it could!

[Edit: typo and clarity]

Edited by ChairmanOfTheBored

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People can't reason properly - the suggestion that "If it's not hurting it's not working" is not logically equivalent to "If it's hurting, it's working". (God Bless mathematics and the logical iff!)

You sound like Wolfgang Pauli. :) Although I'd like to say the same of cheeznbreed as well, given his super intelligence with math and especially science. :)

However, this was not his most severe criticism, which he reserved for theories or theses so unclearly presented as to be untestable or unevaluatable and, thus, not properly belonging within the realm of science, even though posing as such. They were worse than wrong because they could not be proven wrong.

Famously, he once said of such an unclear paper: Das ist nicht nur nicht richtig, es ist nicht einmal falsch! "Not only is it not right, it's not even wrong!"

His supposed remarks when meeting another leading physicist, Paul Ehrenfest, illustrates this notion of Pauli. The two met at a conference for the first time. Ehrenfest was familiar with Pauli's papers and was quite impressed with them. After a few minutes of conversation, Ehrenfest remarked, "I think I like your Encyclopedia article [on relativity theory] better than I like you," to which Pauli shot back, "That's strange. With me, regarding you, it is just the opposite." The two became very good friends from then on.
Edited by Venger

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I can't work out what's happening.

As mentioned in another thread, the UK only has two large mortgage lender left who are not in some form bankruptcy/insolvency/nationalisation: Barclays and Nationwide.

Both have been found to have quite large capital wholes in their books.

AS far as the 'booming' sales and all that.

Yes, this year has seen some activity but thats only relative as the market has been dead for a good 5 years.

In my home region -Scarborough - the market is still dead.

The mortgage numbers do not tally with the spin.

We have hardly seen the start of any deleveraging.

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header-education.jpg

It's like they are teasing you with that!

Back on subject your chart clearly shows the economic problems hit just as the credit expansion stopped, which is what the Austrians argue isn't it?

The graph very starkly shows a flat-lining when this has happened in the past ie 30s depression does it start to decline?

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The chart in your OP goes to show that ZIRP has failed to create the demand for credit that Central Bankers had hoped for.In fact,it looks like incredibly bad value for money.

Are you sure that was the aim? ZIRP is not for creating credit demand it's about saving the bankers from their own stupidity and greed. So far ZIRP has worked.

In America's Great Depression Rothbard does appear to suggest that Fed policy was about saving the big banks, the bailout policy was started a long time ago.

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Back on subject your chart clearly shows the economic problems hit just as the credit expansion stopped, which is what the Austrians argue isn't it?

This should sort it. ;)

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Aren't Gidiot's growth projections all based on a massive increase in household debt?

He has no projections...only soft words.

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header-education.jpg

It's like they are teasing you with that!

Back on subject your chart clearly shows the economic problems hit just as the credit expansion stopped, which is what the Austrians argue isn't it?

The graph very starkly shows a flat-lining when this has happened in the past ie 30s depression does it start to decline?

I got told off for touching the gold at the Bankrupt of England museum.

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It's my suspicion that nobody cares about this graph because the narrative of the economic 'science' paradigm points to the velocity of money when someone gets shirty about the expansion or otherwise of credit money. My instinct about this is that it's the same thing as the 'joker' who whilst not in the company of his brother brags about how knowledgeable his family is and says "Me and my brother know everything - what do you want to know?" and then when asked something that he doesn't know the answer to answers, "My brother knows that one."

What really catches my eye is the abrupt and seemingly resilient break from the trend post Lehmans. My instinct is that things really changed in 2008 and what changed was the willingness of the trade surplus exporters to fund our consumption on the strength of our stated intention to pay them back alone. It was a kind of "the game is up moment". As most of the population and most BBC/private mainstream media editors never understood that we were being offered credit on very easy terms by the people from whom we were buying all the stuff AND they were taking the profits of the trinket exchange and using that to give us easy credit to bid up house prices AND they were then financing the MEW so we could buy more trinkets. People didn't realise that the whole illusion of growth and wealth was predicated on the availability of MORE easy credit. In Ireland and Spain they built houses that they didn't need with all that easy credit. Because our planning regime stopped us doing that, we spent it on kitchens, wood block floors, foreign holiday, fancy cars and all that jazz. In a certain sense the UK response was more rational. Buy shit you want with the borrowed money - don't build houses that you don't need.

I know that Mervyn King has exactly no friends on these boards and that what he actually presided over does not suggest that he knew what was going on but I find that if you want an aphorism to nail the problem, then after the mess showed up, he delivered! In this case it's the "House prices are a matter of opinion whereas debt is real" quote.

The only way to deleverage is to pay back money faster than you borrow money. But if all your growth depended on borrowing against house prices and then taking rising house prices as a prompt to borrow more, then once your ability to grow credit disappears so will growth (and so will your ability to deleverage and anything faster than a glacial pace).

What I'm thinking at the moment is that people think that we are deleveraging because they know their standards of living are falling. But it's like a fat man who eats three cakes a day and gains 6lbs a week switching to a regime that allows him to keep his weight stable and then believing that he should be losing weight because he feels hungry. People can't reason properly - the suggestion that "If it's not hurting it's not working" is not logically equivalent to "If it's hurting, it's working". (God Bless mathematics and the logical iff!)

I think that we are just blowing an opportunity to do something right.

It's all going to go to hell one way or another for the UK. Might as well choose our terms whilst it's still up to us and try to demonstrate to the generations that have to pick up the pieces that we understood the distance between what we wanted to do and what we did. It won't play like that, but its nice to think that it could!

[Edit: typo and clarity]

All sounds like common sense to me. The thing about this deleveraging relative situation, is that Davis is supposed to be someone that can get behind the impressions people have to see if it's based in reality or not. Peddling popular myths is not really good enough.

You sound like Wolfgang Pauli. :) Although I'd like to say the same of cheeznbreed as well, given his super intelligence with math and especially science. :)

Shucks. If you ever meet me in person, I fear you'll be sorely disappointed :lol:

Nice Pauli/Ehrenfest anecdotes.

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All sounds like common sense to me. The thing about this deleveraging relative situation, is that Davis is supposed to be someone that can get behind the impressions people have to see if it's based in reality or not. Peddling popular myths is not really good enough.

51Gye0GjDFL._BO2,204,203,200_PIsitb-sticker-arrow-click,TopRight,35,-76_SX385_SY500_CR,0,0,385,500_SH20_OU02_.jpg

or

going-south.jpg

To be fair to Davis, his subtitle isn't suggesting that the economy isn't a wheezing Ponzi scheme staving off collapse, he's just saying it isn't as bad as you think! ;) I think that Davis is interested in business and the talking to the CEOs of major companies. I don't think that he has much interest or awareness of the detail regarding how the changes in the structure of the economy have affected the earned income and non-discretionary spending of anyone anywhere near a median income. This isn't a criticism; he's set out his stall as a journalist with an interest in business and finance first and foremost, and not a social reformer.

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51Gye0GjDFL._BO2,204,203,200_PIsitb-sticker-arrow-click,TopRight,35,-76_SX385_SY500_CR,0,0,385,500_SH20_OU02_.jpg

or

going-south.jpg

To be fair to Davis, his subtitle isn't suggesting that the economy isn't a wheezing Ponzi scheme staving off collapse, he's just saying it isn't as bad as you think! ;) I think that Davis is interested in business and the talking to the CEOs of major companies. I don't think that he has much interest or awareness of the detail regarding how the changes in the structure of the economy have affected the earned income and non-discretionary spending of anyone anywhere near a median income. This isn't a criticism; he's set out his stall as a journalist with an interest in business and finance first and foremost, and not a social reformer.

Sounds about right, but it was a loose remark by him and I suppose I expected better. Still, as you say, it's not the end of the world.

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These were the OBR's April 2011 projections:

OBR_household_projection.gif

Their forecasting record is about as good as the BoE's.

According to the ONS, household net worth at end-2012 stood at £7.6 trillion, a nominal record and higher than the OBR's 2015 projection.

In real terms household net worth at end-2012 was 5.5% below the end-2007 peak (and 9.2% down when adjusted to real per capita net worth).

The 2012 figures were only released today, so be prepared for some "We've never been richer than today" spin from the government.

BlueBook2013a.gif

Edit: changed billion to trillion

Edited by FreeTrader

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I got told off for touching the gold at the Bankrupt of England museum.

Well, it's not likely to be their gold after all...

Come to think of it, if (some of) the gold is the UK's, what mandate does the BoE have to legally lend out our UK gold?

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These were the OBR's April 2011 projections:

Their forecasting record is about as good as the BoE's.

According to the ONS, household net worth at end-2012 stood at £7.6 trillion, a nominal record and higher than the OBR's 2015 projection.

In real terms household net worth at end-2012 was 5.5% below the end-2007 peak (and 9.2% down when adjusted to real per capita net worth).

The 2012 figures were only released today, so be prepared for some "We've never been richer than today" spin from the government.

Edit: changed billion to trillion

Great, Imputed rent is going to boost GDP a great deal...again.

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Imputed rent is up to over 10% in 2013 , was 7.8% in 2009 so a rise of 30%. Property is the UK economy.

I've always meant to have a good look a the blue book and imputed rent so here is my first quick analysis from the HPCer POV (where is the face palm emotion on HPC?)

imputed1.PNG

post-25740-0-37007100-1375284777_thumb.png

Edited by koala_bear

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One just knows, that if all else fails, then a revision of a non existent stat will come to the rescue.

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The 2012 figures were only released today, so be prepared for some "We've never been richer than today" spin from the government.

Great stuff, FT - thanks for the post.

That expansion of borrowing by households from 2000 to 2007 looks even more eye-watering now that it has come to an abrupt halt. Not sure I'd put too much of my own money on household debt reaching £2,126bn by 2015.

It does illustrate that judged in terms of the gap between where we are and where Osborne and pals want us to be by 2015, even if all the £130bn lending under Help to Buy mortgage guarantees was new lending that wouldn't have happened before 2015 without the guarantees, it's still relatively small beer compared to the gap, i.e. £130bn vs £580bn.

I think that 'hopes' of another credit boom are a dog that won't hunt.

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