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DabHand

Gdp Taken To Service Debt

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Quick calculation:

1.3Trillion debt.

1Trillion is housing mortgages lets say interest rate on this lump is 5%

300billion is unsecured, mostly credit cards, lets say 15 odd % as average (generously low)

Roughly 100bn per year is taken out of the economy to service the INTEREST ONLY on the debt mountain. Thats 7.7% of GDP going into paying off debts interest alone.

Whats the historic level of GDP spent on debt repayments, anyone got the info/graphs??

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Just to expand on this for a moment with some voodoo economics backed up by cowboy statistics:

Attached is a graph showing GDP growth and debt growth per quarter over the last 18 years or so (roughly one economic cycle in Gordonbrownspeak). Debt growth is defined by taking the amount we owe in mortgages, secured and unsecured credit and subtracting the same total from the previous quarter. This should be seasonally adjusted, as is GDP growth.

The interesting thing to me about this graph is that the amount we borrow each year has actually fallen since 2003. Private borrowing is still growing at over 10% a year at the moment but it's been higher than this before. Now, look at the first bit of the graph, the late 80's to early 90's. What we can see quite clearly is that a large fall in the amount we borrow each year tracks falling GDP growth down into a recession quite nicely. To my mind, this suggests that if we see another significant fall in consumer borrowing like the one at the end of 2003 we could be in some quite serious trouble.

The other interesting thing about this graph is that the data only goes up to Q2 2006 at the moment so we are yet to see the effect of rising interest rates or fuel bills. IMO, the key as to whether or not there will be any kind of crash in the next 12 months is going to be whether that all important consumer borrowing level can be kept up. If it can, then growth should tick along somewhere around 2% for another year. If however increases in CPI above 2.5% force the BOI to raise interest rates and if people get clobbered with huge winter heating bills and a big council tax rise in April then it is possible that borrowing could fall again. If it does then things could start to get a bit wobbly.

What the government will need to do is work very hard to keep CPI below that magic 2.5% and hope that everybody goes out and splurges on their credit cards at Christmas. As long as they have some room to maneuver on interest rates and crude oil prices stay down this may be achievable. If CPI forces them to raise interest rates before Christmas then there could be trouble.

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Thanks deano for cross referencing the older thread.

The only comment I have is that everyone talks about servicing debt with GDP as if the GDP was somehow a separate item. The point, in the UK and the US at least, is surely that GDP growth for the last few decades IS only debt growth. They keep quoting real GDP growth. But there is no Real GDP growth. It is all "growth" craeted by bringing forward tomorrow's spending via borrowing.

And of course then there is the so called debt servicing. Actually I would call it GDP growth servicing! What the divergence in the graph shows is that if you "create" GDP by borrowing you have to do so faster and faster- ie the relationship becomes one where you have to run faster and faster by doubling then trebling the rate of debt increase in order to just maintain the rate of GDP increase. Of course the banks are trying harder and harder with greater income multiples and longer periods of borrowing, becuase they want more profit. But the governments can't stop it because their target is the so called real GDP growth, which will be negative if they stop the borrowing rate of increase increasing.....

There is no reality. What we have is an inflationary illusion. Unfortunately the road leads to hyperinflation. or a really diabolical recession. Although now the central banks are trying desperately to manage a mix of these - Goldilocks indeed :( . It is tragic and shows the folly of trying to manage the economy by limited targets.

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The point, in the UK and the US at least, is surely that GDP growth for the last few decades IS only debt growth. They keep quoting real GDP growth. But there is no Real GDP growth. It is all "growth" craeted by bringing forward tomorrow's spending via borrowing.

Yes, exactly. The real GDP, in terms of doing useful things that people actually want, has been dropping for years... only ever-increasing debt has allowed the government to pretend otherwise.

It is tragic and shows the folly of trying to manage the economy by limited targets.

I think it's more that it shows the folly of trying to 'manage' an economy full-stop.

Edited by MarkG

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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