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Independent: Fears Of New Economic Crash As British Families Run £40Bn Deficit

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British families are on course to spend £40bn more than they earn this year, fuelling fears that the countrys economic growth is based on soaring levels of debt and could easily collapse.

The forecast by the independent Office for Budget Responsibility (OBR) led to warnings that the UK could be heading towards a credit crunch similar to that of 2008 because of unsustainable levels of borrowing and household spending.

Five years ago UK households were firmly in the black, running a surplus of £70bn as Britons tightened their belts in the wake of the financial crash and put money aside to save.

But the new OBR figures show households are now deeply in the red, as growing economic confidence has led to a national spending spree.

Seema Malhotra, the shadow Chief Secretary to the Treasury, said: George Osborne is relying on millions of British families going further into debt to hit his growth targets. This is risky behaviour from a Chancellor whose policy decisions are hurting not helping British families. Alarm bells should be ringing. There is a real risk that millions of families will face serious hardship if interest rates start to rise.

The former Business Secretary Sir Vince Cable, who warned in The Independent last month of the dangers of excessive household debt, said: Were back on the treadmill of growth being sustained by personal borrowing. Much of it is against an inflating housing stock.

Taken together with other indicators like the very weak external deficit position, it suggests were getting back to the old and unhappily discredited forms of economic growth.

The soaring amount of annual borrowing equivalent to around £1,500 per family emerged in the fine print of OBR calculations released alongside Mr Osbornes Autumn Statement last month. The Chancellor used the occasion to announce he was able to scrap plans to cut tax credits and spending on police forces because of Britains improving financial position, but Labour said the new figures proved he was depending on families going deeper into debt to enable his figures to add up.

The OBR statistics showed households spent £68.9bn less than they earned in 2009-10. The figure fell to £67bn in 2010-11, £35.7bn in 2011-12 and £27bn in 2012-13. The following year Britains families went into the red to the tune of £12.4bn, rising to £29.4bn in 2014-15.

The OBR projects that households will spend £40bn more than they earn this year (2015-16), increasing to £40.4bn in 2016-17, £43.9bn in 2017-18, £48.6bn in 2018-19 and £49.5bn in 2019-20. Total household borrowing is set to reach £222bn over the lifetime of this parliament.

Ms Malhotra added: Of course families need access to credit and the ability to borrow to invest for the future. George Osborne should be seeking to rebalance the economy away from an over-reliance on borrowing and debt.

Labour is clear about the need for a strong and sustainable economic recovery. Osbornes short-term political decisions risk real long-term damage to the finances of millions of British families and the nations economy.

Meanwhile, the OBR predicts that Britains household debt-to-income ratio will reach 163 per cent in 2020-21, which is close to the 168.2 per cent level ahead of last decades economic emergency.

Citizens Advice said it dealt with 149,000 cases in England and Wales last year of people with problems over credit or charge card bills; 133,000 instances of people unable to repay personal loans and 60,000 cases of people asking for help with large overdrafts.

Gillian Guy, chief executive of Citizens Advice, said: A rise in household borrowing could lead to an increase in unmanageable debt further down the line. She added: Increasingly younger people are finding it difficult to keep on top of their finances with over a fifth more young people now seeking debt help compared to the previous year.

The figures follow a Bank of England study which found that the average mortgage debt in Britain rose from £83,000 in 2014 to £85,000 this year. Unsecured debt, which includes credit card charges, personal loans, student loans and utility bills, stands at round £8,000 per household.

The banks chief economist, Andy Haldane, has warned that consumer credit had been picking up at a rate of knots. It has hinted that it could raise interest rates to reduce the risk of a credit bubble.

A Treasury spokeswoman said: The economy is recovering and confidence is returning, but while household debt is still below its pre-crisis peak were determined to avoid repeating the mistakes of the past. Thats why weve created the independent Financial Policy Committee within the Bank of England which ensures risks across the financial system are quickly identified, monitored and effectively addressed.

http://www.independent.co.uk/news/uk/home-news/fears-of-new-economic-crash-as-british-families-run-40bn-deficit-a6782221.html

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Despite other claims, The UK< with a 5% budget deficit, a 6% current account deficit and fast approaching 100% debt/GDP - and thats just the debt they'll admit to - is not a low interest economy.

Our economic fundamentals point to the UK having to maintain much higher IRs than most of the West.

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If all of us borrowed a million quid each today...not only would we feel rich, we would live as if were rich and both look and act rich.....but would be poorer than we were yesterday.

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Our economic fundamentals point to the UK having to maintain much higher IRs than most of the West.

Care to explain?

The only way the sharade continues is ultra low rates so there can be a perception that the debt is repayable. If IRs were high then lots of debt would go bad and get written off.

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Meanwhile, the OBR predicts that Britains household debt-to-income ratio will reach 163 per cent in 2020-21, which is close to the 168.2 per cent level ahead of last decades economic emergency.

In effect Osborne has privatised the budget deficit reduction.

If govt. deleverages then axiomatically private sector must releverage to achieve the same level of output (ingoring net trade).

govt policy dogma is the problem. Osborne should have run a higher deficit, let rates tick up a little faster and allowed private sector to deleverage further. Instead hes gone for the Lawson trick and created another housing/consumer boom.

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Care to explain?

The only way the sharade continues is ultra low rates so there can be a perception that the debt is repayable. If IRs were high then lots of debt would go bad and get written off.

OK, do loan sharks charge low or high IRs?

The more distressed the borrower, the higher the IRs.

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In effect Osborne has privatised the budget deficit reduction.

If govt. deleverages then axiomatically private sector must releverage to achieve the same level of output (ingoring net trade).

govt policy dogma is the problem. Osborne should have run a higher deficit, let rates tick up a little faster and allowed private sector to deleverage further. Instead hes gone for the Lawson trick and created another housing/consumer boom.

I'd agree with that.

I realized this week he's hidden his deficit elsewhere and STILL can't get the main one down.

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The orthodox Keynesian approach has failed catastrophically, as those of us who've argued against it said would be the case. Ever cheaper money is a disincentive to private sector deleveraging. The policy of QE and ZIRP is disinflationary, promoting financial asset bubbles at the expense of the broader economy.

The UK is spectacularly bankrupt as a consequence. It has no future worthy of the name.

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The orthodox Keynesian approach has failed catastrophically, as those of us who've argued against it said would be the case. Ever cheaper money is a disincentive to private sector deleveraging. The policy of QE and ZIRP is disinflationary, promoting financial asset bubbles at the expense of the broader economy.

The UK is spectacularly bankrupt as a consequence. It has no future worthy of the name.

I dont think for one minute ANYONE thought QE would fix anything.

It bought the rich/bankers time.

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This is why the police state and clampdowns on various freedoms are being brought in asap across the Western world.

Edited by Errol

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The orthodox Keynesian approach has failed catastrophically, as those of us who've argued against it said would be the case. Ever cheaper money is a disincentive to private sector deleveraging. The policy of QE and ZIRP is disinflationary, promoting financial asset bubbles at the expense of the broader economy.

The UK is spectacularly bankrupt as a consequence. It has no future worthy of the name.

There hasnt been one

Cant believe you are arguing Osbornes austerian deficit reduction plan is Keynesian!

Seriously questioning your agenda and incessant straw man posts now Zugz.

Are you an Austrian goldbug southern (US) state right wing republican in disguise? You certainly look like one.

OUTED.

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There hasnt been one

Cant believe you are arguing Osbornes austerian deficit reduction plan is Keynesian!

Seriously questioning your agenda and incessant straw man posts now Zugz.

Are you an Austrian goldbug southern (US) state right wing republican in disguise? You certainly look like one.

OUTED.

Maybe he should have said "pretend keynsianism" it's TPTB that will have us believe this is Kensianism and therefore good for us all.

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If all of us borrowed a million quid each today...not only would we feel rich, we would live as if were rich and both look and act rich.....but would be poorer than we were yesterday.

Spot on and Tweeted....well, most of that. :lol:

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There hasnt been one

I would agree. What we have seen in the West for the last 30+ years has not been Keynesianism at all. Just like we haven't had anything resembling capitalism for a long time as well.

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This is why the police state and clampdowns on various freedoms are being brought in asap across the Western world.

spot on, they know exactly what is coming.

ever decreasing wages, jobs, opportunities, debts all round and the only thing that has kept it at bay is the belief your house is worth 10x the average wage.

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I would agree. What we have seen in the West for the last 30+ years has not been Keynesianism at all. Just like we haven't had anything resembling capitalism for a long time as well.

It seems it wasn't the free market tories but the "fee" market tories...where someone always takes a cut.

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OK, do loan sharks charge low or high IRs?

The more distressed the borrower, the higher the IRs.

Oh I see yes.

That's why UK 10 year is trading at +126bps over the German 10 year, highest level since the EMU started and Germany decided to carry all the unproductive guys in the med.

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In effect Osborne has privatised the budget deficit reduction.

If govt. deleverages then axiomatically private sector must releverage to achieve the same level of output (ingoring net trade).

govt policy dogma is the problem. Osborne should have run a higher deficit, let rates tick up a little faster and allowed private sector to deleverage further. Instead hes gone for the Lawson trick and created another housing/consumer boom.

I know what you are getting at (ht steve keen), but of course this statement isnt quite right becuase Osbourne hasn't been de-leveraging.....

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I would agree. What we have seen in the West for the last 30+ years has not been Keynesianism at all. Just like we haven't had anything resembling capitalism for a long time as well.

Isn't keyne about government spending when the rest of the economy tanks, so by keeping a large deficit qe and low rates effectively the same thing?

The big question is where is all the money going. Because they aren't doing anything productive with it.

Yes there have been cuts, but costs seem to rise just as quickly despite deflation.

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Oh I see yes.

That's why UK 10 year is trading at +126bps over the German 10 year, highest level since the EMU started and Germany decided to carry all the unproductive guys in the med.

That's more to do with fear and financial repression.

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Isn't keyne about government spending when the rest of the economy tanks, so by keeping a large deficit qe and low rates effectively the same thing?

The big question is where is all the money going. Because they aren't doing anything productive with it.

If they arn't doing something productive with it then its not a "keynesian" stimulus. QE isnt keynesian, helicopter cash inst keynesian. Public sector non-jobs isnt keynesian. Corbyns house building program is keynesian.

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