Thursday, August 23, 2007

Debt, debt and more debt.

Record numbers face debt meltdown

Wow, we already passed the point where we have more debt than the size of our economy (some time ago, I didn't realise that). This just goes to show that a number of people here may be right when they say that, not only must asset prices (houses) go down, but debt destruction must also occur. Of course, this can occur by a reduction in value or by inflation. We have a choice and it seems that banks would prefer inflation at present, with all the liquidity they are feeding the system.

Posted by planning4acrash @ 12:30 AM (1270 views)
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10 thoughts on “Debt, debt and more debt.

  • The inflation route doesn’t actual fix the problems.

    The theory is that you give people time to fix the problems. But ultimately stupid & unproductive behaviour continues anyway.

    Hence you still have the issue to resolve and you just went this way first.

    dumb really.

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  • Dagenham Dave says:

    Would this be the same Edmund Conway who only a year or so ago was telling us everything was rosy, no crash likely etc.Do these [email protected] honestly think you can engineer a credit boom of this magnitude with no serious consequences? Governments/Central banks use alternating inflation and deflation to whipsaw the average man in the street out of his savings and into debt. It’s all about control. it’s disgusting.

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  • Get on with the carnage with no pussyfooting around. The sooner unfunded aspiring idiots realise that western lifestyles are unaffordable for them the better. When the message finally gets through stop lax borrowing and force people to save or starve!!!!!

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  • Blindleadtheblind says:

    So total debt is greater than GDP, does this mean the banks own the UK??

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  • There is no clever solution here – the markets have woken up to the fact that interest rates were too low – that risk was underpriced.

    They are now moving to correct the problem by raising rates – especially for higher risk borrowers.

    Solution? No. Problem! – the higher risk borrowers are those who already can’t afford to pay off their loans, and survive by endlessly remortgaging to raise cash. With house prices stalling (leaving them with no more equity to release) and interest rates rising, these people are up s#@t creek without a paddle.

    Around two million UK households are in this boat…

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  • Dagenham Dave. I don’t think it could have been Conway. He is quite bearish and for my mind always has been.

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  • Don’t worry! It’s not a problem that the country owes more in debt that the national GDP – I read an article on the BBC not too long ago (I think it might have been posted here) that £1 trillion worth of debt doesn’t really matter because we all have our debts securitised against our houses! And houses never drop in value so we’ll never lose money so it’s all OK – the BBC says everyone can still go on borrowing like madmen…

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  • “So total debt is greater than GDP, does this mean the banks own the UK??”

    No. The people who lend to banks are the ones that own the UK. What I’m not sure is who those creditors are. When papers say things like “Average household debt in the UK is £8,841 (excluding mortgages) and £55,567 including mortgages” (from http://www.creditaction.org.uk/debtstats.htm). Does that mean:-
    Of householders in debt, the average is £55,567
    Or
    UK personal debt/ no of householders = £55,567
    Or
    (UK personal debt – UK personal credit)/ no of householders = £55,567

    I’m confused over size, and who is owed. Is the UK debt lent by other UK people, or by the rest of the world.
    I feel if the debt is mostly held by UK people then the economy will generally be ok, and the debt mountain will be levelled by inflation (-> no HPC).
    If the debt is mostly held by ROW people then the UK economy will face the same problems as the Japan in the 90’s (-> HPC).

    Thoughts anyone?

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  • ontheotherhand says:

    Refusetoby,
    creditaction talks of households not householders, and so it means UK personal debt/ no. of houseHOLDS = 1,345bn/ 24million households = £55k

    I think the scary stat is that borrowing secured on property rose another 11.2% over the last year from 1,017bn to 1,131bn.

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  • Sorry, my terminology was weak, although I think my question still works. Change personal debt to private debt (by which I mean debt held only by UK households).

    I agree an 11.2% rise is scary (even scarier is that it’s year on year), but I’m trying to work out who it’s owed to – UK or foreign?
    And what about all the UK households with money in the bank?

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