The Bank of England is stepping up its scrutiny of banks and other lenders on credit cards, personal loans and car purchases amid fears they are being lulled into a false sense of security by the current economic backdrop.
What is clear is that the Bank of England is trying to prevent a crash based on personal debt failures, and rightly so. But three questions follow.
First, is this too late: the debt may already be out of control, and has sky-rocketed in the last year?
Second, are they aware that this will precipitate a crisis when already over-extended people denied new credit will default on existing obligations?
Third, why aren't they calling for a national pay rise instead, which is what is so obviously needed?
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Buy me a coffee!
I have seen articles about how young motorists with low incomes and no credit ratings are being sold new cars under fancy finance. It is not only them, there are a number of deals for other motorists involving leasing etc. which carry costs that some will not be able to manage if they have limited assets. If this bubble bursts it will be nasty. It may account for the way retailing is going as these and other schemes in property etc. impact on overall spending.
Agreed
I feel a blog coming on….
it’s important to remember that people need credit facilities (in many cases it is being used to supplement falling real wages).I agree with you that restricting credit (and therefore restricting the ability to roll over previous obligations) will most likely lead to the crisis which such measures would be trying to avert! In terms of innovative car financing – I think it’s best to look at such ‘deals’ as simply renting a car long term, and that’s not a bad way to pay for the use of a car. Restricting credit overall will be a bad move if there are not mechanisms in place to deal with the inevitable defaults. Personally, I would like to see a nationalised bank where debts could be transferred for a fixed low interest rate (the interest is really all that matters – that is the income for the lender) – since government can create money just as banks can – why not have the interest (i.e. profit) go to the government rather than private banks?
Oh for the old Girobank….
Here I am feeling bad about driving around in a second hand 8 year old Mondeo looking at all these people at work (some paid less than me) with their new cars and wondering if I am really making it.
And yet it turns out that this phenomenon that can make me and others feel unequal and set apart from the mainstream is just based on badly administered debt.
What a farce.
Love it!
You mean the advertisers haven’t got to you yet?
MayP
Well, I think that they HAVE got to me – which is why I feel inferior to others or feel as though I am not keeping up with the Jones’ – but because my wage rises are limited to 1% and every year I think that I could lose my job I just do no not take the risk of taking on any more debt!
I also do not believe in buying new cars because of depreciation. I have always bought low mileage second hand. I’m not really a ‘car guy’ as the Americans say.
We had our 2003 Ford Focus for 11 years!
I think that I was trying to illustrate what Richard speaks of in the Courageous State – that we are encouraged to consume in a short term way – selling on perfectly good cars for example which if well kept and well maintained them would last long enough for us to save for another one.
I am a dedicated buyer of good second hand cars that I then try to keep for a decade
Bizarrely car leasing suits me very well as a result
But that does not diminish my systemic concern
“Here I am feeling bad about driving around in a second hand 8 year old Mondeo”
8 year old Mondeo?
Luxury!!!
I’m perfectly happy with a little 17yr old Fiat, which I bought from a friend years ago for £500, and which actually cost less than my phone!
I’m aware of the paradox of thrift, and call me old-fashioned, but unless you are hugely wealthy, vain and ostentatious, the thought of borrowing, at interest, anything between £20K >£50K+ for a machine that spends 90% of its day depreciating, empty and motionless on the road outside your house, strikes me as daft.
I suppose a lot of people just fall for the marketing?
Just noticed a comment of yours on Twitter re the possibility of a pre Brexit crisis being engineered. I had similar thoughts last night after reading Hammond’s completely economically illiterate explanation of the need to maintain the public service pay cap. Would you care to elaborate? Is your idea that the intention would be to shift public opinion further towards a large majority for remain?
Should be a blog in the morning Cathy, albeit I have a very early start
When will they ever learn? I’d say it’s already way too late. Endless warnings have been given ever since the GFC. The BoE / Gvt. will try every economic trick in the book to avert the inevitable recession but you can only push water uphill for so long. Furthermore their actions will be counter-productive. The UK seems to be especially vulnerable because of low pay and low productivity. Unfortunately I don’t think the Labour Party have the courage to speak the truth and, if in power, to take the requisite remedial measures. It must be very distressing and depressing for all you wise economists who have been raising the alarm for the past 10 years to see your predictions unfold.
Why?….is it because they are economically illiterate? Surely not. Or maybe they are subject to political pressure? Impossible. Maybe they think it’s not their job.
The worry is that households are already in deficit territory, see the red lines in the graph at
http://www.progressivepulse.org/economics/economics-101/follow-the-money/#more-1247
Unlike the government, households cannot run a deficit for long. Previous cases were followed by the 90-92 recession (well done Nigel Lawson) and the global financial crisis (well done Gordon Brown and Mervyn King).
The only guys in surplus are Companies which indicates the madness of reducing corporation tax. If we had left it where it was and closed down all the rent extraction activities of banks, utilities, etc. (see e.g. https://www.theguardian.com/money/blog/2017/jul/01/forget-austerity-government-cuts-profiteering-private-companies), we would not be in such a mess now.
Agree with all that Charles
Access to credit is such a perverse facility. The clarion call to live now pay later is accepted with great relish and with little regard to the mini-mortgage taken out on future income.
The grass is truly greener on the other side of the must-have-consumer-item hill.
Are we really heading for yet another bail-out from the non-existent Magic Money Tree – this time the banks in need of largess to meet their bad debts and shifty derivatives funding consumer goods this time, not property.
There’s a blog coming for the morning, I think…..
Financial Crash followed by recession on its way?
http://bilbo.economicoutlook.net/blog/?p=36348
http://bilbo.economicoutlook.net/blog/?p=14325
See a blog out soon
[…] England obviously has about the stability of the personal debt market on a number of occasions now, the most recent being yesterday. One element of this market seems to be causing particular concern, and that is the individual car […]