I received this by email from investment advisors Hargreaves Lansdown yesterday:
Looming debt crisis will lay waste to our finances
- One in four of us are spending more than we're earning (26%), so we risk running up debts.
- Higher income households are borrowing more as a percentage of their income - and have a bigger share of their borrowing on variable rates – so they're more vulnerable to changing rates. Almost a third (31%) score ‘poor' or ‘very poor' for their control of debt.
- They're also more likely to have a mortgage – and be hit by runaway remortgage rates. Overall, over the next 12 months, 26% of mortgage holders will be at risk of arrears.
- 230,000 of those people who are at risk of arrears have cash savings that cover less than three months of essential spending – so are classed as being at high risk.
- 470,000 mortgage borrowers in this position also have unsustainable spending, so are at critical risk. This is up 220,000 from the end of 2021.
- This time next year our disposable income will be 2.5% lower than at the end of the pandemic.
- 630,000 people will be spending more than they're earning, have no assets and already have some borrowing – putting them at real risk of arrears.
Figures are from the latest cycle of the HL Savings & Resilience Barometer, released 3 July 2023.
They may not, of course, be right. This is survey based data. There will be margins for error. But, however viewed, this is deeply worrying.
Significant numbers of households have their wellbeing at serious risk. Many more are, inevitably, deeply worried by that risk.
And why is that? It is all because the Bank of England is pursuing hopelessly inappropriate interest rate policies.
It is staggering how the stupidity of a few dogmatists can challenge the welfare of so many. It is even more staggering that it is tolerated.
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the Bank of England is pursuing hopelessly inappropriate ……… policies.
Just like in 1925 with the Gold Standard
Just like the 1930s worsening the Great Depression
Just like in the 50s and 60s investment was scaled back to maintain the exchange value of the pound.
Just like the first part of this century with reckless lending on property.
Just like 2010 onwards with austerity.
And today supporting more unemployment and bankruptcies as an answer.
We may remember, after the banking crisis of 2008, the Queen asking the LSE ‘Why did no one see this coming?’
‘We will write to you Ma,am’. (When we have figured it out -but we might not fix the problem to prevent it happening again)
A consistent failure to understand the system as it works in the real world.
Well said
‘A consistent failure to understand the system as it works in the real world.’
I don’t disagree with many ‘regulars’ here lightly such is the experience and erudition (and support) on display (after all, who the hell am I anyway?) but I could not disagree more with Ian.
Consider this:
You rightly point the shenanigans of the inter war period which was basically all backed up with austerity (read Mattei, 2022). But what have we seen more recently – from the repeal of Glass-Steagal Act in the US to short and long term austerity under Thatcher-ism in the early 80’s.
What do I see?
The BoE, the Treasury, the government all know EXACTLY what they are doing – exactly.
A ‘failure to understand’? No way. Like all extremists, they know what they want and know how to get it too (political funding, Davos and lots of parties at Rupert Murdoch’s place to name a few things we know about).
And what are they doing? They are preserving the capital order as they always have done.
And now, they have to because of 2008 and even with Thames water – the cat’s out the bag, they are being rumbled so now they’re going for broke and democracy will go down with it and so will your rights to object.
Is it too scary to consider that all this is deliberate and not ignorance? This desire for capital to take us back to some unfettered golden age and the negation of history?
Or am I wrong?
I like the argument
Hi Pilgrim
I think some cases you may be right. Some are using the system to attain their own ends-probably more opportunistically than a long term plot. When it could be ‘cock-up’ or conspiracy , I tend to go for the first. I have little time for theories which postulate a central control -the Rothschilds, the Trilateral Commission, the WEF or whoever. Controlling events is difficult even when they have direct power. When they don’t, it is more so. Events are unpredictable and so are people.
But I suggest what we are seeing is ideology in action. We have seen many examples in history, Catholic church -not just them-Communism, Fascism and neo-liberalism.
Ideology provides an over arching explanation that is emotionally satisfying. It enables one to make an instant judgement on a whole range of issues and relieves people of the burden of having to think too deeply and perhaps realise that oneself is not perfect, not fully informed and could be wrong. It also provides an enemy to project our feelings of hate , and our feelings of superiority.
Challenging a consensus held by ‘our people’ (supporters of the ideology) is hard as it removes the emotional comfort of being one of those who really know. Keynes is an example of someone who could analyse and change his opinion as facts changes. I think that is rarer than we suppose.
In the 1960s Thomas Khun wrote the The Structure of Scientific Revolutions’ and observed that paradigms change when the Old Guard retires or dies. Scientists are supposed to be rational, discerning people but even they can get emotionally attached to their world view and find ways of rebutting inconvenient contradictory ideas.
It does create arrogance. The dismantling of Glass Steagal was probably done with the assurance that it would be all right-much like the people at Chernobyl who disregarded the safety procedures.
So i am saying ideas have a sort of power over people but they can be dispelled over a short period -unfortunately usually a violent and disruptive period.
However, we should keep your point in mind as those who can see beyond their indoctrination are more dangerous in many ways.
If I may reply to PSR (?) I agree with his post re the mob at the top know what they are doing & by extension, the harm it does to UK serfs. Years ago Marr interviewed Chomsky, the latter making the point that Marr would not be in the position he was if his views did not conform. Ditto the BoE & the assorted chimps coming up with window-dressing alternatives to re-nationalisation and the justifications for interest rate rises.
By extension, “A consistent failure to understand the system as it works in the real world” applies to MMT and an articulation by those at the top how gov finances actually function. They will never articulate how gov finances actually “work” because THEY KNOW that would undermine the system that suits them. Lying? maybe. But everything to do with preserving the system & their positions in it.
e.g. a simple reality: for the most part, the NHS self-funds because spending on health has an economic multiplier. Nowhere in the meeja is this articulated. Nowhere.
Had Marr “lost a cog” or caused his part of the system to get a bit rackety – he would have been replaced. Ditto the chimps at the top – as PSR notes, they know what they do, they rationalise it to themselves, using cognitive dissonance in much the same way that others who have also abused citizens throughout recorded history.
Which leaves this open question to readers on this blog, who, by & large, appear to have convergent views: so what are be going to do?
Can I check? Is the last what are we going to do?
This begs the question: how will the situation look in 2024 – an election year in all probability?
Neither “party” offers anything to address the points listed. Indeed the current trajectory is more of the same. Most odd & very sad for those impacted, no choice and the way things are going, no future.
Market fundamentalists like the current Tory Party and Starmer’s Labour Party love turning the UK into a “creditocracy”!
http://www.paecon.net/PAEReview/issue104/Spano104.pdf
I have no idea where they got the facts behind their press release from BUT Hargreaves Lansdown (Disclaimer, may father worked for them for a year or so in the late 70’s and a friends daughter works there as well) seem to have a ‘well off’ client base so may well have an interesting insight into the finances of the top 10%.
By contrast many years ago I did hear an interesting comment from a balloon ride pilot working in the Midlands, he pointed out that the ‘factory workers’ were relatively well paid BUT were not interested in ‘Status Symbols’ – posh houses, flash cars etc so tended to have quite a lot of disposable income compared with more ‘middle class’ people.
Perhaps we might see a huge hole knocked in the income of many supposedly wealthy but highly indebted households
Hargreaves Lansdwon seems genuinely interested in these issues
They seem to get that if some households are at risk we all are
I am not saying they are altruistic
I am suggesting they seem to understand risk and want it averted
Hence the saying “fur coat and no knickers”
“Perhaps we might see a huge hole knocked in the income of many supposedly wealthy but highly indebted households ”
GaryEconomics believes that the current economic trajectory is not only impoverishing the poor further but shrinking the middle class. While the richest get ever richer.
The end result being almost no middle class.
I think he is right.
The economy naturally tends to make the rich, richer. They have the resources to effect change. It takes effort to stop this natural tendency. Neo-liberal hands off approach guarantees this move of money to the top.
I agree with him
Mortgage rises are going to hit the middle classes – and most especially the financially aspirational – hard as they are heavily leveraged
Richard – keep at it and continue with your rhetoric, well reasoned arguments and production of undeniable evidence of just how dangerous and shocking the consequences are of current BoE policy.
Other commentators (some who could be viewed as adversaries) are beginning to echo your views. So perhaps the message is starting to trickle through and hit home (wishful thinking I know).
A defining moment for central banking
In the face of a stubborn trilemma of challenges, central banks need help to restore policy credibility
Mohamed El-Erian:
‘There should be a comprehensive top-level review of some central banks by independent bodies appointed by governments. That should encompass their policy-making processes as well as looking, in some important cases such as the Fed, at outmoded policy frameworks and target setting, the lack of cognitive diversity and poor accountability’.
https://www.ft.com/content/4b2063a4-0e43-4552-ba1f-6ab3f259e203
Geoff Cook (ex Head of Wealth Management at HSBC and ex Chief Executive Officer of Jersey Finance):
https://www.linkedin.com/in/geoffcookadvisory/recent-activity/comments/
The current one club approach to tackling inflation is outmoded and ineffective. Interest rates alone cannot do the job without crippling economies and visiting awful outcomes such as failed businesses and lost homes on regular working people.
Punishing the general population for the policy mistakes of governments and central banks is unjust.
Supply side management, fiscal measures and a change in the governance of central banks are all needed. Central bank boards and monetary policy committee’s are populated by highly paid elites who will not be impacted by the measures they are imposing. It’s not difficult to be a ‘hawk’ when you feel no pain.
When Geoff Cook and I agree I worry
We spent years as adversaries
Interesting article by Bill Mitchell stating that to effectively tackle climate change we’ll have to reduce private consumption because government expenditure needs to grow:-
https://billmitchell.org/blog/?p=60956
To my mind what will be important is reaching consensus on the rules we deploy to achieve this sectoral shift in expenditure. It’s clearly going to be counter-productive to hurt the poor in doing so. It’s also going to be counter-productive to reduce the value of many wealthier people’s main financial asset their homes. We need a strategy list.
I agree with him
On a lighter note that Peter May gets all the scoops!
http://www.progressivepulse.org/brexit/i-think-leave-means-leave
@Schofield I realise that there are some very real issues about reducing the value of peoples homes, mostly when they are mortgaged BUT the massive and unjustified increase in land and property prices threatens to wreck the real economy.
What is worth pointing out though is that while most of what we think of as ‘assets’ cars, houses etc require maintenance by the owner but the value of a pound has to be protected by the state at all costs it seems
@ Boxall. Indeed I believe too the issue of credit creation by the private sector is out control particularly in the UK but bringing it under control has to be phased in to avoid creating a crash. There is also no choice that we do since there has to be a large increase in government spend and a reduction in private sector consumption to tackle climate change.
How this is to be done without a global consensus of individual governments is exceedingly difficult because monetary systems serve both private and public objectives. The private finance industry wants to make money come what may. The only saving grace is that its recklessness regularly needs bailing out by state money creation powers as the following paper makes clear. The paper though also makes clear there is hegemonic power involved in this currently the United States as provider/dealer of last resort. Anyone familiar with the economic ethos prevailing in the United States knows it’s a big ask hoping that country will rail in its financial sector.
https://www.bu.edu/gdp/files/2021/10/GEGI_WP_053_FIN.pdf
Very apposite definition of fascism from Toni Morrison:
“[fascist politics] changes *citizens* into *taxpayers*—so individuals become angry at even the notion of the public good.”
Full context here:
https://twitter.com/DavidpStein/status/1676007480474877952
” … the genius of fascism is that any political structure can host the virus and virtually any developed country can become a suitable home. Fascism talks ideology, but it is really just marketing – marketing for power.
“It is recognizable by its need to purge, by the strategies it uses to purge, and by its terror of truly democratic agendas. It is recognizable by its determination to convert all public services to private entrepreneurship, all nonprofit organizations to profit-making ones – so that the narrow but protective chasm between governance and business disappears. It changes citizens into taxpayers – so individuals become angry at even the notion of the public good. It changes neighbours into consumers – so the measure of our value as humans is not our humanity or our compassion or our generosity but what we own.”
@Hannah V
What you say is very relevant to the current state of the UK. Because of climate change there is a big need for government spend to tackle it (for example a very large energy inefficient housing stock). This will require reducing private sector consumption to release resources for the government spend. Note neither the Conservative or Labour Party leadership is talking about this necessity, indeed not really taking it seriously.
There is another dimension to such a re-balancing policy it needs commitment by other governments because this means reining in the finance industry which finances both nationally and globally. This is a big ask because this particularly industry is a big factor in “capturing” political parties primarily through campaign contributions. Electoral system reform is therefore also a necessity.
In Canada according to this link, 1/3 of Canadians are unable to pay at least one bill or loan
https://www.transunion.ca/content/dam/transunion/ca/business/documents/canada_consumer_pulse_q2_23.pdf
Again the greatest Fed Chair Eccles spoke about this many decades ago about the Great Depression and unfair distribution of inocme:
“As mass production has to be accompanied by mass consumption, mass consumption, in turn, implies a distribution of wealth … . Instead of achieving that kind of distribution, a giant suction pump had by 1929-30 drawn into a few hands an increasing portion of currently produced wealth… In consequence, as in a poker game where the chips were concentrated in fewer and fewer hands, the other fellows could stay in the game only by borrowing. When their credit ran out, the game stopped.”
Eccles also battled the deficit limit crowd in a 1939 radio speech
https://fraser.stlouisfed.org/files/docs/historical/eccles/Eccles_19390123.pdf?utm_source=direct_download
He was right