As the Guardian reported yesterday:
The Bank of England has told banks, credit card companies and car loan providers that they risk fresh action against reckless lending as it warned of a looming “spiral of complacency” about mounting consumer debt.
In its toughest warning yet about the possibility of a rerun of the financial crisis that devastated the economy 10 years ago, Threadneedle Street admitted it was alarmed about the increase in the amount of money being borrowed on easy terms over the past year.
“Household debt — like most things that are good in moderation — can be dangerous in excess”, Alex Brazier, the Bank director for financial stability, said in a speech in Liverpool. “Dangerous to borrowers, lenders and, most importantly from our perspective, everyone else in the economy.”
Four thoughts. First, unwinding QE is a bigger threat than this, as I explained yesterday. I do not deny the risks the Bank is talking about are real, but the greatest risk is in Threadneedle Street.
Second, if there is a personal debt crisis it has developed on Mark Carney's watch. Where is the mea culpa for failing to put appropriate measures in place to stop it developing? The signs have been there for some time, as I, amongst many others, have noted.
Third, why isn't the Bank being blunt in saying that the solution to this is to be found in fiscal policy, led by government investment that would boost real economy, actively increase productivity and drive up wages?
And come to that, why isn't it saying that this crisis is the consequence of austerity that has forced people into debt and what is needed now is a fiscal stimulus by relaxing that policy?
It seems to me that the Bank of England is worried, as it should be. My concern is that it's worried about the symptoms and not the causes and as a result is looking for solutions in all the wrong places. As usual, then.
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“10 years of low interest rates
Is it any surprise that consumers are loading up on credit?
RAISE INTEREST RATES”
My comment on this mornings BBC HYS on the same subject
It’s so exiting to see how popular your comments are – currently 3 out of 48
What does the last mean?
http://www.bbc.co.uk/news/business-40712573
Interesting read that BBC thread Gareth has linked to.
A convocation of plain ignorance and financial illiteracy.
Follow the insane advice of most of the fools posting to that board and the UK economy would explode.
I agree with your comments about the importance of increased government investment, but unfortunately there is no money available given the current state of public spending compared to tax income.
Oh dear Bill: you really have not been paying attention to all I have been writing on this blog, have you?
Government does not need tax to spend.
But when it does spend it can recover much of that sum through tax. Start with today’s post on the multiplier and work back
So, if I understand you correctly, your solution to a consumer (private) debt crisis is to increase government debt, paid for by the consumer….?
Increased government spending increases people’s income
That increased income results in more tax being paid
The rest is spent
The recipient pays tax
Then they spend
And so on
And the increased spend encourages business to invest
Which is spending
Which recipients pay tax on
And then spend
Which the recipients pay tax on
And so on
But the point is that the evidence is that the overall level of income is raised by much more than the spend incurred
And the resulting growth means the spend pays for itself
It does not work as you suggest
You also need to read about the nature of government debt, which us just a savings medium used by many people including you if you if you have a private pension
Hi Richard. I was reading a graph from the FT this morning and is this new. Consumer debt has risen exponentially since 2014 so why has this not been addressed sooner? It seems to me that they have been happy with the growth in a debt based economy until now. Could this be a primer for interest rises?
It could be an excuse for interest rate rises
But on the other hand that just pushes those already stressed over the cliff
Which makes such rises a lousy idea
My mate Danny Blanchflower seems to think the next rate change is downward. He may be right
BTW the graph was from 31st of May 2017 but unable to post due to paywall
Link?
https://www.ft.com/content/f6992568-4149-11e7-9d56-25f963e998b2
Will use
The temptation here is to wonder if further debt/financial crises have an element of design in them somewhere. A ludicrous and paranoid view perhaps. However if we look at what happened from 2008, beyond a few cases, the people at the top of society suffered very little in the longer term. If fact from what I’ve seen many have done very well. Those on lower incomes continue to suffer. More homes are repocessed and end up in the hands of private landlords, morgages are more than hard to get for some which force them into a rental market that is so often ridiculously expensive. The debt burden on the young and low wage seems to becoming more oppressive and more longterm. A boon for the rent collectors. Its almost like the crippling PFI system if being applied to citizens now too.
In some ways, it seems to me, that a failing economy/econimic system isn’t actually failing for all. Presumably that could last forever and might require some more injections of state cash.
I am a little confused, because you have previously stated that the BofE would never take steps to unwind QE. Is this still your belief, and if not, what is the basis for this change of heart ?
Thanks
I think the Fed will try
I very strongly suspect the BoE will want to
I suspect that in the end they won’t
But the risk from them even trying is very big
We’ve known for years that Osborne’s GDP growth and falling govt deficit forecasts were based on rising household debt.
And lo! It has ocme to pass.
You could argue that’s one forecast Osborne managed to hit! (removes tongue from cheek)
I might pull out the data
[…] noted the Bank of England’s suddenly discovered concern about personal debt in the UK yesterday, and the threats that they are issuing to banks who have extended such loans. As I noted, I have […]
‘It seems to me that the Bank of England is worried, as it should be. My concern is that it’s worried about the symptoms and not the causes and as a result is looking for solutions in all the wrong places. As usual, then’.
You couldn’t have put it any better really.
The way the BoE skirts around this issue is all about denial.