Tuesday, April 5, 2011

More Debt to Beat Debt Problem?

Households Sink Under A Sea Of Debt

UK households are already the most indebted in the world. Dig down into the detail of the OBR forecasts and things look pretty frightening. Overall household debt rises from £1.62 trillion last year to £2.13 trillion in 2015, or from 160pc of income to an astonishing 175pc. In other words, consumption growth, a key part of the OBR's overall forecast for growth, is only maintained by taking on more debt.

Posted by ontheotherhand @ 11:23 AM (1324 views)
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10 thoughts on “More Debt to Beat Debt Problem?

  • sibley's b'stard child says:

    ‘To arrive at its conclusion that household consumption will by then be rising fairly robustly, the OBR makes a couple of very questionable assumptions – that to maintain spending and living standards, UK households will both reduce their savings rate and increase their borrowings.’

    I just don’t ‘get’ this theory that personal debt will rise to maintain living standards; surely most (sane) people will cut-back all discretionary spend to the bone?

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  • ontheotherhand says:

    Peston on a similar theme http://www.bbc.co.uk/blogs/thereporters/robertpeston/2011/04/retailers_mega_squeeze.html

    The big weight is £1.5 trillion of household debt, which remains close to a record in respect of its relationship to disposable income. That £1.5 trillion is equivalent to around 150% of gross household disposable income, which is considerably greater than it has ever been (except in the last five years).

    Back in 2000, after eight years of consistent and significant increases in consumer spending, the ratio of household debt to disposal income reached what was for then a very significant new high of 100%. But as a nation of shopping and housebuying addicts, we kept on borrowing.

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  • As I have already said, the banks are not handing out the easy credit any more. Not even to people who used to be considered sound risks. These folk who are already maxed out won’t be getting any more credit and, more importantly, will be paying out a large chunk of their income on interest payments. If the rate rises they will be stuffed.

    So it’s not really a case of sane or not. They have no choice.

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  • Hang on, didn’t the same paper yesterday tell us that homeowners were paying down their mortgages at record rates? Here’s what the BBC said yesterday: BBC News: Mortgage pay-off at new record.

    So which is it? Sinking under a sea of debt, or paying down their debt as fast as possible? You can’t have it both ways, media.

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  • mark wadsworth says:

    What Drewster says. It’s all DoubleThink.

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  • Sinking under a sea of debt and therefore paying down whatever debt they can as fast as possible.

    This is all deflationary. The central bank price fixers will not raise rates significantly for years. The only way interest rates will rise is if the financial markets finally baulk at the bottomless pit of indebtness in the western world. Otherwise, it’s the Japanese deflation scenario for as far as the eye can see.

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  • does anyone know what the level of household debt was in the 80’s

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  • Hmm..

    I’ve only glanced at this, but if you take inflation into account; the OBR’s predictions begin to look a little wide of the mark, but not ludicrously so..

    If you make the assumption that consumer debt will both uplift for inflation and grow relative to forecast GDP growth; you probably arrive at their figures – or thereabouts..

    Personally, I think we will probably see consumer debt edging gradually down in real terms, while GDP falls well short of current projections..

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  • Clearly the economy is overly reliant on credit led consumption. This has reached a finite limit. Any transition away from this will not just involve pain but needs this pain to encourage people to becoming more productive.

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  • @ mark in 7:

    Household debt as a share of disposable income in the UK was at about 40 per cent in 1981, and started rising up to nearly 65 per cent by 1986. And it kept going up after that. The whole Credit Boom is largely a phenomenon of the Thatcher government’s creation. The previous peak had been under Heath, who had also loosened the machinery of credit.

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