Having posted one item on the suffering of low income UK this morning, let me continue the theme. This comes from Geoff Tily at the TUC this morning:
Let's put the performance of household budgets since Theresa May became Prime Minister in July 2016 into context.
We can see from the following chart that in every quarter since July 2016, household outgoings have outstripped income (2016Q4 to 2017Q1):
Source: ONS net lending/borrowing for household sector
The total shortfall is £34bn across all households — an average of £1250 per household.
And the annual shortfall for 2017 of £900 per household was also the first for 30 years. As the ONS has pointed out, even in the run-up to the 2008 financial crisis — an era of 100% (or more) mortgages — we never reached a point when the average household was a net borrower.
Theresa May has achieved the extraordinary feat of turning UK households into deficit borrowers.
Which for those who understand the sectoral balances is no surprise. If the government was to improve its deficit position then someone had to borrow. It turned out inconsequential national debt, which is affordable and never need be repaid, has now become deeply consequential and crippling household debt, which is what caused the 2008 crisis. As macroeconomic failures go this one is at the appalling end of the scale.
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I remember when it first turned red back in 2016 and thinking, ok this is going to be bad? The size of the houehold deficit and the duration is really shocking this time round. Compared to previous cases, the very low interest rates have allowed household to sustain their debt. However at some point households have to repair their balance sheets and then we will have a recession.
It is inevitable
But recession will be a kind outcome without massive fiscal policy
The consequences of dire decision making are coming home to roost
This is exactly what I’ve been saying – even before Philip Hammond’s vaunted proclamation that he’d achieved a day to day fiscal surplus, deficit spending was far too small, but now it can only result in a depression and more than probably result in a repeat performance of the 2008 GFC. If economic performance has become dependant on personal debt then this can only go in one direction as history attests, but why is it that Hammond and the greater bulk of economists can’t see it?
Deficit spending isn’t an automatic panacea that rectifies the economy though, as demonstrated when the Tories engaged in it. It’s important to direct that spending for public purpose if the maximum benefit is to be achieved. Tory deficit spending is generally for the benefit of their corporate chums and this doesn’t help the bulk of the population – we need to massively restor spending in the public sector and the development of a guaranteed job creation scheme that will raise the level of basic income and the standard of employment as the foundation for rebalancing the nation’s economy.
I have added my own follow up on this here.
http://www.progressivepulse.org/economics/the-single-most-important-piece-of-economics-that-everyone-should-know
Thanks Charles
May I borrow it?
What are worried about ??
The economy is doing fine….
For The First Time Ever, Lamborghini’s Annual Turnover Exceeded $1 Billion
11.7K
VIEWS
2017 was a very good year. 2018 will be even better.
Before the Volkswagen Group brought Lamborghini into its fold in 1998, the Italian supercar company had been struggling to stay afloat for years. VW provided it with long-term stability for the first time in its relatively short history, and the results speak for themselves today. Lamborghini has just announced that turnover exceeded just over 1 billion euros, precisely 1,009,000,000 euros in 2017, or nearly $1.25 billion, thanks to a worldwide sales increase from 3,457 to 3,815 units.
Embracing the luxury market, in the face of a deteriorating volks market, was clearly a smart survival tactic for Volkswagon.
Well, my family are saving less to cover our increased expenses. God knows how others cope – mind you I am now thinking about getting another job say at the weekends. We may have had our last European holiday for sometime but we have a good tent purchased when we were a bit more flush.
Everything has gone up and our wages have not kept up.
But the fascists are not going to wind me up and get me to blame someone else.
I know whose fault this is and have done since 2010. My pitchfork is ready for when there are enough of us.
@ Charles Abrahams
“Tory deficit spending is generally for the benefit of their corporate chums..”
Bernie Sanders proposing legislation to resolve a large chunk of this:-
https://www.washingtonpost.com/business/2018/08/24/thousands-amazon-workers-receive-food-stamps-now-bernie-sanders-wants-amazon-pay-up/?noredirect=on&utm_term=.890b23be0f6f
[…] For further discussion, see here and here. […]
Well Mrs May said she was going to pay attention to the “Just Managing” and she was as good as her word by moving them from “just managing” to “not managing”!