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Stephanie Flanders | 08:37 UK time, Wednesday, 2 September 2009

It might be a blip - but it feels like the end of an era. For years we borrowed and borrowed, and we didn't think too hard about tomorrow.

CashBut not any more. Last month British households paid back more debt than they took out, for the first time in at least 16 years.

After so long carping about all of us living beyond our means, you might think that economists would consider this good news. Not a bit of it.

You see, in economics - as in life - timing is everything. If all of us - government included - had borrowed less in the boom years, we'd now be very grateful for our restraint.

But there's borrowing less in a boom, and there's borrowing nothing at all in the middle of a bust. That's not welcome news at all - even if it may show we're moving to a different time.

To put things in perspective: British consumer debt now stands at just over £1.4 trillion - or just under £24,000 for everyone in the UK - nearly all of it in the form of mortgages.

We found out yesterday that number went down by £635m - a mere £10 per head. Which isn't much at all. But it is the first time it's happened since at least 1993 - when, I might add, personal debt was £1tn lower than it is today.

British companies spent July paying off their debt as well - the stock of mainstream corporate debt fell by a more impressive sounding £8.4bn - the biggest such decline since 1997.

That is bad news for the Bank of England - which wants companies, especially, to be helped by their policy of pumping billions into the economy.

The Bank prefers to look at the quarterly data than the more erratic changes month to month. But at the very least, these numbers suggest it has more to do.

For Sale and To Let boardsAnd - where households are concerned - they show quite how drastically the mood of borrowers and lenders has changed in barely a year.

Even if we were a nation of worthy savers, you would expect net lending to individuals to keep going up - at least for mortgages.

As Kevin Daly at Goldman Sachs reminded me, the average house in Britain only changes hands every 8 years, meaning the people selling the house, on average, should have a smaller mortgage than the people buying it.

So - even if house prices have been falling for a year - you'd expect the buyer's new mortgage to be larger than the old mortgage being repaid.

Net lending would carry on rising, even if house prices were falling, and even if households were saving more.

After all, the figures don't tell you anything about the big wedge of cash for the people at the end of the chain, who even now, are probably selling their house for more than they paid for it, and aren't taking on any new debt.

In fact net mortgage lending did rise throughout the last recession in the early 90s, amid falling house prices and a sharp rise in saving.

So the fact that lending has actually fallen tell us these are truly exceptional times. The Bank of England won't want to see this happen month after month.

But if we're going to have more balanced growth in the future than we had in the past, you might well want borrowing to grow more slowly than the economy as whole - so the stock of debt relative to GDP starts to fall.

And you would certainly want households to start saving more. Last year households saved less than 2% of their income. In 1995 the figure was 10%.

You never know, that might make us a rather different nation than we are today.

If interest rates go up, we journalists might worry a bit less about the rising cost of a mortgage - and talk more about the return on savings going up.

(For what it's worth I think we're already giving savers more attention than they had before. And rightly so.) In that saver nirvana of the future, first prize in the church raffle might be a new ISA.

Who knows, if Britain stopped being a nation of big borrowers, foreign investors might even stop worrying that we would decide to inflate all our debts away.

Yes, there'd be everything to play for in savers' Britain. But Lord, please don't send us there quite yet.


  • Comment number 1.

    But this always happens in a recession. The last time we had a recession was in 1992, so 1993 should not be a surprise. At times of instability and poor confidence people and businesses pay down debt. It is a no brainer!

    The issue again is why hasn't this well-known characteristic of recessions been factored into the expectations? A small cut in VAT and some marginal help in buying a new car does not an economic policy make. There is an implosion in demand evident on every high street around the country. In some places it is getting quite spooky.

    The consumer is paying down debt. Business is destocking and retrenching. Unemployment is increasing. Government is bumbling and the City is trying to puff up another bubble. What we need is an economic policy whether it be dear old Keynes or even something based on neo-classical endogenous growth theory (remember that one?. Whatever theoretical base it might have is rather irrelevant. What is the issue is the need for a sense of direction, common purpose and leadership.

  • Comment number 2.

    Borrowing nothing means less income for the socially useless banks, less house building and hopefully lower house prices.. It also means less income for the Govt to spend and that has to be a good thing..

  • Comment number 3.

    The stats simply reflect the definition of a balance sheet recession where debt minimisation rather than profit maximisation is the goal

  • Comment number 4.

    Perhaps the bank put its money in the wrong place then? Had they given me a decent chunk of the money they put into the economy then I might have been tempted to spend it on something, which would provide income for some companies selling me goods, which they could then deposit at the bank. By just giving it to the banks, they've missed out helping everyone else in the chain.

    Plus I'm cutting back and saving for the inevitable storm that will come next year when VAT goes back up and we have to start paying the bill that Gordon will be leaving with us. It's like being at a restaurant where one of the diners is ordering all the expensive menu items and then disappears off to the toilet just before the bill turns up, never to return.

  • Comment number 5.

    All the previous high borrowings led to massive profits for the banks and dubious financiers with little marging passed on to savers. What did they do with those profits ! Gambled the lot. No use to Britain or to anyone in Britain.

    The sooner we get rid of this massive debt burden reaped on a gullable public to quicker we can return to spending real money again.
    There will be pain in the middle for us all but the long term benefits are so great we have to stop the massive borrowings of the past decade.

    Another reason for people not spending is that savers are seeing no return and therefore have no excess disposable income.
    The only way to survive the future in Browns Britain is to stop working, borrow what you can, spend all you have borrowed and live to a ripe old age on Government benefits. All whilst the prudent many wonder how they are going to repair the roof and pay the enormous Council Tax to fund public sector pensions.

    We are back to the 70's I fear

  • Comment number 6.

    IMHO I believe we are coming to the 'end of an era' - and the signs of recovery should not be focused on house prices rising again, people starting to borrow heavily again, or GDP simply stabilizing (or rising slightly again). Traditional 'economics' is too narrow in scope, and effectively 'dead' ... and a 'new economics' will emerge (nb Dr. W. Edwards Deming highlighted the needs for this way back in the 1990's) and new 'economic indicators' will be needed. For those interested in exploring this a little more you can take a look at , which also looks at some alternative indicators to use whilst searching for signs of a 'turning point' and the 'start of the recovery'.

  • Comment number 7.

    "...even if house prices have been falling for a year - you'd expect the buyer's new mortgage to be larger than the old mortgage being repaid. Net lending would carry on rising, even if house prices were falling, and even if households were saving more."

    I'm sorry Stephanie, but this is nonsense. We expect that each time a house is sold, the remaining term left on the houseowner's mortgage increases, but this is exactly matched by the decrease in all mortgage terms as time flows forward. All else being equal, the term left on the average mortgage should be roughly constant. With changing house prices, or increasing home ownership, or a changing demographic of house owners, the total stock of mortgage lending may increase. But a never ending increase is obviously unsustainable; at some point, mortgage lending must get yanked back to the reality of average income.

    Wikipedia doesn't say whether your first degree is in a numerate subject, concentrating instead on your many illustrious close connections. But I'm guessing that you were hired for your linguistic, rather than your analytic skills.

  • Comment number 8.

    Stephanie your piece highlights the dilemma which the Baldwinites fail to address. They bang on about balancing the budget failing to see what the impact on demand will be by simply removing the debt overhang through immediately repaying government debt. In this crisis the government has pumped debt into the sytem temporarily to replace that withdrawn from the system by the collapse of the wholesale markets and bank lending. Ultimately this will need to be unwound (sales of bank stakes, cuts in government spending, taxes etc.) in an orderly if painful manner. These figures betray the volatility in the system as demand will be hit by extra saving, disrupting an orderly return to a stable and sustainable level of economic activity. Debt remains the number one problem but without demand and economic activity there is no solution to the debt overhang.

  • Comment number 9.

    This doesn't come as much of a suprise, most of the people I know (including myself) all fear losing jobs in the comming year and having trouble finding new ones. So we're all trying to save a extra bit of money or pay of a bit more debt in case we're out of work for a while.

    Net Mortgage lending isn't rising because many people with houses to sell are refusing to negotiate with price, people wanting to buy houses are realising that £1/4 million for a 2 bed flat is a bit insane so the market has stalled until people are forced to sell houses to increase the supply (a estate agent recently told me that in Guildford they had 100 properties on their books, this time last year is was close to 1100).

  • Comment number 10.

    Part of the problem is that the those in positions of power and influence on these issues, ie. bankers, politicians, senior civil servants, journalists, etc. are completely out of touch with reality on their £100,000 salaries. A case in point. You speak about savings as though this is a good place to be at present. Absolute rubbish. A relative of mine who had saved a moderate amount for retirement has seen their income from savings halved over the past 18 months as interest rates crashed, whilst inflation rates hardly changed. Consequently, they are now burning through their capital like a start up. The situation is made much worse, since they have also seen their local council demand a 25% increase on their old peoples' home charges, since the council is short of money! As a result, their saved capital is likely to disappear in less than 3 years, so they will then be forced to live off the state, whereas previously, they had at least another 7-10 years of non-state dependency. So where is the logic in this? Hence I agree entirely with GrumpyBob's suggestions above. Why bother to save unless you are looking forward to a fat state pension for working in the public sector on tax payers contributions all your life?

  • Comment number 11.

    Message 8 tonyparksrun

    `Baldwinites': I like that term. I must reread his biography: a boring book about a boring man. He should have been a banker.

    `...the government has pumped debt into the system temporarily...'

    Indeed they have and I would agree there was little choice but how temporary is temporary? The IMF has calculated the sum as GBP1.227 trillion. To repay such money is going to take a generation: such a period has more than a passing scintilla of permanence about it.

    However orderly one may wish the unwinding of such a position to be, itis going to be very painful for a society that firstly did not enjoy the boom times but, secondly, in many cases suffered during the boom time. This country has a massive deficit in both financial and human terms.

  • Comment number 12.

    David #7 I think you are right, but it may just be a simplification gone too far.

    If you take into account that, with fixed repayments, for a new mortgages the outstanding balance is reduced only by a small amount every month, most of it is interest. For an old mortagage, a significant amount of the starting balance is paid down each month, but if the mortgage was taken out 15 years ago, that starting balance would be much smaller, due to the property price inflation bubble.

    So even if property prices stayed constant from now on, it could still take a while before net lending stopped increasing, as the downpayment stream from smaller old mortgages would not be sufficient to cover larger new mortgages that pay mostly interest. This could be true even if there was no new lending, if the price inflation was big enough (and it was). The effect is amplified even further by interest only mortgages. I think ..

  • Comment number 13.

    Apologies, my analysis went a bit too far in the last posting #12 .. it could obviously not be true if there was no new lending ;)

  • Comment number 14.

    "For what it's worth I think we're already giving savers more attention than they had before. And rightly so.) "

    Really Steph? So why does everyone at the BBC always cheer house price rises like it's good news for the economy.

    So personal debt has increased from 0.4 to 1.4 trillion since 1993. I make that a 250% increase. So I presume the average wage has risen by 250% in the same time interval then? - don't think so. Either wages need to increase to reflect the increase in debt or house prices need to come down in value so that new borrowers will have lower levels of debt relative to income. Yes interest rates are low, but that only shifts the problem elsewhere in the economy - for every debt-holder there are ten savers that have less money to spend. What will happen is that a combination of inflation and house price falls will occur until the long term income/debt ratio is restored. What is reprehensible though is the policy of bailing out those responsible for this mess with low IRs - the reckless lenders and borrowers at the expense of those that have paid off their mortgage and are living off their savings and those wanting to buy a house at a fair price.

  • Comment number 15.

    Grumpy Bob said "We are back to the 70's I fear".......

    I wish we were. We might be able to stop the Treasury piddling all our oil revenues down the drain!

    It's staggering that the Norwegian Sovereign Wealth Fund has just dedicated $4bn, one per cent of its total funds, to green shares. This latest move followed a change in investment strategy agreed earlier this year, reports said.

    As part of this shift in strategy, Norway has invested $1.2bn in 232 Indian companies deemed to be environmentally friendly.

  • Comment number 16.

    Sorry to post again, but just to underline the bleeding obvious - increases in average personal debt are only sustainable by the same percentage increase in average earnings. House price rises (which are determined by debt based on expected future earnings and represent the majority of personal debt) are only sustainable at the same rate as the increase in wage inflation. A ten year old child can work that one out.

  • Comment number 17.

    The world is changing. the BRIC countries, particularly China, are emerging. A great leveling process is underway. For the UK to compete, business has to react quickly, and how quickly it is happening. In more than half a century, I can't remember wages, hours, pensions and working conditions changing in the way they are now, and without even a whimper from employees. We all know it has to happen.

    It may be dangerous for the economy to repay all that dept too quickly. however, delaying saving, particularly for a pension, by even a few months is financial suicide for the individual and the lower real interest rates are, the more we have to save.

    Those of us who have saved all our lives are not spending now - our savings are producing no income. Along with those who have poor savings, we will work longer, blocking the jobs that would have been taken by younger people. Those who have been prudent over the last decade have been looked upon as sad. And we're absolutely sickened at having to bail out a country that has no idea how to save. When a chancellor thinks boom and bust can be abolished, what hope is there for the rest of us?

    There is no easy solution to the mess we're in. No instant remedy. It will take years to unravel. Let's at least have some educated journalism that recognises that we have to provide for ourselves. Put the emphasis on the progress we're making towards that. When the next fancy financial product or tax credit is introduced, remind us where the last fanciful decade led to.

    Its going to be very painful. A complete re-education and mindset. In the end, those who've always spent less than they earned, however little that income may be, will have choices in their lives and will deal with the hard times more easily. But if the country (individuals, companies, government) keeps expecting us to support those who think the state should help them, be it with low interest rates or benefits, whilst they happily buy their next sandwich and a latte - then I think we're in for some very serious unrest.

  • Comment number 18.

    I'm sure that in the current climate more people and businesses that can are paying down debt.
    There has also been a sharp rise in the number of insolvancies,bankruptcies CVAs etc. leading to debt writeoff and writedown, both corporate and personal.
    I think that this has had more of an effect on overall debt levels than people making the same payments on their mortgages despite the interest rates falling.
    If the whole country went bankrupt at the same time, the nett debt level would become zero.

  • Comment number 19.

    In the boom running up to the credit crunch, corporate Britain behaved insanely. Encouraged by silly City analysts, companies "geared up", taking on irresponsible levels of debt. If that debt is being paid down, so much the better. It shows that sanity is returning and it must improve the banks' capability to lend to responsible businesses who need it.

    In years gone by, people took out endowment mortgages that were supposed to be a good long term investment. Under those mortgages, no debt was paid off. They were interest only. These days, endowment mortgages are rare. Mortgage holders tend to be paying off principal with every monthly payment. The numbers of new mortgages are historically low. So if there is a modest net pay down of mortgage debt, I see this as encouraging.

    a) It means that the vast majority are keeping up their mortgage payments

    b) There is yet further capacity for mortgage lending to increase and hence help the all important housing market to recover. This will reduce negative equity, improve comsumer confidence and help us out of recession

    All this is capable of being turned on its head when Quantative Easing finally hits the fan and inflation turns up at the end of the year.

  • Comment number 20.

    How much of the fall in debt is due to the reduced volume of house sales? As you point out, typically each sale has a seller with a low mortgage and a buyer with a higher mortgage. If fewer houses are sold then the number of people taking on new mortages falls. For the rest, homeowners are paying down debt as they pay off their mortgages; either month by month with a repayment mortage or at the end with interest only type mortgages.

  • Comment number 21.

    The extraordinary indebtedness of UK population was encouraged and induced by largely unregulated financial institutions combined with enormous psychological pressure of commercial organisations to consume, consume and consume regardless of the long term implications. There is an overwhelming need to regulate and limit the expansion of credit by government in respect of obtaining it and as important paying back what people owe. This must also apply to credit cards as well as conventional loans and remortgaging property. The party is over and the host (HMG) has alot to answer for.

  • Comment number 22.

    Stephanie, you say that too much borrowing in a boom was the bad thing, so what is your view of the Austrian School theory that Central Banks should not interfere by manipulating interest rates?

    During "credit booms", like the last decade, there are too many borrower and not enough savers. If the market forces set interest rates then it would be a savers' market due to to many borrowers competing for a smaller pool of savings. Therefore, the market forces would push interest rates up as the small pool of savers demanded better returns. This in turn puts the brakes on the credit bubble automatically.

    However, if central government/bank can set interest rates, then they can artificially force interest rates down to exacerbate the credit bubble effect, as Brown did, but it will ultimately end in tears, as we have seen.

  • Comment number 23.

    It's only a good thing that people are paying down debt. Especially people whose mortgage repayments have dropped, but who keep paying the same amount to reduce outstanding capital.

    Most people aren't completely daft. So, if you now know that a house was bought at a premium price, getting rid of negative equity is a good start - and even simply cutting outstanding capital is great because it offers a bit more flexibility next time you want to move. Better than just wasting the "reduced payment" cash on trainers or TVs?

    So that hits the retail market? So what? If demand falls, retailers have to try and attract business by clever marketing or price/margin management. Isn't that we like as customers?

    Sad thing is that central government has no idea how to respond to reduced income. Most people tighten their belts. Brown seems to believe that spraying around other people's money will do them good!

    By the way, I gather that the World Service News suggested that Brown believes the upcoming 50percent income tax rate could be applied to a wider target group than originally proposed. Any truth in that?

  • Comment number 24.

    "For what it's worth I think we're already giving savers more attention than they had before. And rightly so.) In that saver nirvana of the future, first prize in the church raffle might be a new ISA. "

    Stephanie how can you make such a statement? The prudent savers have come out worst in all of this.

    "Who knows, if Britain stopped being a nation of big borrowers, foreign investors might even stop worrying that we would decide to inflate all our debts away."

    Another flipant remark by you that again will wipe out the prudent savers.

    What planet are you on???

    Explain yourself.

  • Comment number 25.

    The world service was saying this morning that Brown has hinted that the 50% tax band will after the election start at a lower level of earings, and thus effect more people.

    Is this true and if so why isnt the BBC jumping up and down about this as up until now Brown has insisted that there and unanounced planned tax rises!

  • Comment number 26.


    To put things in perspective: British consumer debt now stands at just over £1.4 trillion - or just under £24,000 for everyone in the UK - nearly all of it in the form of mortgages."

    Who comprises the class 'everyone in the UK'? 1 year olds to 100 year olds? Why not express debt per working person?

    Add in business loans and credit card loans etc, and what are we talking about? My point is that people read all this and make up their own assumptions. everyine thinking about the same referent? I suspect not.

    So, what do these figures refer to? When people discuss them, are they ever talking about the same thing? Are they even talking to each other rationally? or are they just econo-gossiping/babbling?

    Hence - 'busted flush'.

  • Comment number 27.

    why do the media in general and the BBC in particular seem to think that when house prices start to rise, then all our troubles are over? over inflated house prices are part of the problem not the solution.... The only idea appears to be lets get the economy back to where it was....that means another boom followed by guess what? doesn't it seem somewhat ludicrous that we are spending tax revenues (and future tax revenue) now, with the sole intention of providing ourselves and our children with more expensive houses!

  • Comment number 28.

    Would it be pertinent to point out that economists are now the "new estate agents"? Their singular inability to see this stuff coming was recently put down to a "collective failure of imagination of bright people", citing what is essentially institutional hubris on the part of almost everybody involved in the financial industry, including economists.

    I'm not willing to listen to economists' predictions any longer: it is time to consign these people to the roles of "economic HISTORIANS" as their inability to make predictions is not just due to their own inflated sense of self-worth: simply put, current economic theory does not make for good forecasts. Economists are appalling at forecasting.

    As to who to blame (our usual question) - point your fingers at the politicians. The banks represent a huge system, built by humans (but never explicitly designed properly) with small decisions, made day-to-day and influenced by basic human drives (i.e. greed) causing the system to move, inexorably and with seemingly unstoppable inertia, towards the hyper-bubble we saw inflated. The public, fed this apparently unlimited credit, lapped it up.

    Those who should have had the long-term stability of our entire way of life (capitalism) as their goal were utterly asleep at the wheel, falling over each other deregulating their hearts out (US-UK) to please the city suits. These are the people we should blame. That they made themselves utterly powerless is unforgiveable, and illustrates the total lack of long-term vision our modern breed of Ivy-League legal-trained media spinning politicians have.

    If at this point the whole world decides it's time to put up with single-digit growth, and we not only rein in investment banking, but practically wipe it from the face of the planet, then we will all lead simpler, probably slower, but more fulfilled lives, I suspect.

    And the comments in the story regarding mortgage sizes just go to show: we heaven't learned a bloody thing. A house is a home, not an investment vehicle. Unless we change the view we have of this stuff, nothing will change.

    Oh - and recent signs of recovery are just your basic dead cat bounce. Watch the american car industry crash and burn in the next 6 months as they realise the cash for bangers scheme was the only thing keeping them afloat. The UK will realise this when the BOE stops QE.

    You borrow from the future, it has to be repaid. CDSs, CDOs - these borrowed from the next 20 years, maybe more. Only after that is repaid or written off can we get back to something normal: and if we haven't decided to live within our means, then we'll start the whole thing again.

    It's like the whole western world is on crack or something...

  • Comment number 29.

    At 09:52am on 02 Sep 2009, GrumpyBob wrote:
    "We are back to the 70's I fear"

    Now that's a telling phrase. Pre-Thatcherite. We ran very hot for an awful long time, created a lot of large financial edifices and threw away a lot of manufacturing (most of it industrial era, admittedly) and at the end, it feels like we've managed to pee it all away as we sit in hugely overvalued, tiny houses fretting we're about to lose our jobs.

    Anyone got a time machine?

  • Comment number 30.

    Base_Experience (#28) "It's like the whole western world is on crack or something..."

    Large numbers of people have now been 'educated' to peddle words disconnected from any referent. The result is high verbal fluency with little empirical content. This is indeed like people of psychoactive stimulants. It is also an illustration of people not knowing what they are talking about, and not caring much either.

    The dire consequences are obvious. :-(

  • Comment number 31.

    Of the £1.4trillion 'consumer' debt, what is the split between long-term (mortgages) and short-term borring (proxy: credit card indebtedness) - how did the two fare relative to each other in this recent period?

    The ratio between long term and short term indebtedness is possibly a useful indicator of borrowing/saving sentiment. It varies widely from country to country.

    Also, how many (or what value of) house sales were distressed sales, possibly auctions, at which very few buyers would be mortgage-seekers at all?

  • Comment number 32.

    #28 - "A house is a home, not an investment vehicle" - not any more it aint. Securitization depends on house price inflation and Bernanke wants to restart that particular 'investment vehicle'.

    "The UK will realise this when the BOE stops QE" - they cant stop it, the banks now depend on it for their very existance (and bonuses).

    ". . . and if we haven't decided to live within our means, then we'll start the whole thing again" - that IS the policy now being implemented and actively promoted by the cuerrent US and UK governments.

    "It's like the whole western world is on crack or something..." drug addiction is actually a very good analogy for the current situation. QE is funny-money, politically supplied substitute crack to replace the wholesale crack no longer available.

    New thinking is what is required not restarting the same old cycle of asset inflation and collapse - BOOM AND BUST - certain things have changer irrevocably however. The shift in economic power eastwards is only just beginning to be felt politically. The days over western hyper-consumption and hyper-debt are over, though the shape of things to come is not yet clear.

  • Comment number 33.

    "After so long carping about all of us living beyond our means, you might think that economists would consider this good news. Not a bit of it.

    You see, in economics - as in life - timing is everything. If all of us - government included - had borrowed less in the boom years, we'd now be very grateful for our restraint.

    But there's borrowing less in a boom, and there's borrowing nothing at all in the middle of a bust. That's not welcome news at all - even if it may show we're moving to a different time."

    Don't you think you should at least acknowledge that there is a serious body of economic opinion that disagrees with these ideas? That predicts an insipid and misdirected recovery as the result, and suggests this is too high a price to pay for ameliorating the downturn by preserving those who would otherwise be its casualties?

    Or do you completely subscribe to the modern reasoning that holds that anyone not supportive of the mainstream must have arrived on this planet from Mars?

  • Comment number 34.


    The collective set of behaviours is, I think, of monumental historic importance as it shows I think that consumers are thinking hard not only about how much money they do or do not have but as to how they can make what money is available 'work harder' - 'working capital' for households as consumers.

    I think that this also shows that many persons are expecting their incomes and standard of living to fall - there is a lot going on here.

    Under these cicumstances, one of the best things a mortgagor can do is to pay back as much of the mortgage debt as possible - in case of harder economic times in the future/lower standard of living.

    A very astute set of observations.

  • Comment number 35.

    "However orderly one may wish the unwinding of such a position to be, itis going to be very painful for a society that firstly did not enjoy the boom times but, secondly, in many cases suffered during the boom time. This country has a massive deficit in both financial and human terms."

    I was being unusually optimistic when I referred to orderly unwinding of the huge and seemingly permanent debt. I expect that it will be extremely disorderly - even mild mannered Frank Field predicts riots over the great pension swindle.

    Accept that the debt may seem permanent but this will hang over the country for generations unless we get some leadership someone spells a way out (inevitably unpalatable)and attitudes are changed.
    Ask what you can do for your country (or former bankers if you prefer).

  • Comment number 36.

    It seems to me that the BoE should specify more than the base rate. There needs to be a definition of the allowed differential between rates paid to savers and those demanded of borrowers.

    The current situation is silly - with base rate supposedly at 0.5% the lending rate for new mortgages is not that different to what it was a few years ago pre-crunch and overdraft and loan rates are sky high often as high as 14%.

    And with credit cards doing whatever they like, largely unregulated... we need more economic tools for the BoE and more watchdog tools for the FSA (or whoever ends up in that role).

    Basically the banks are shoring up their balance sheets at the expense of the customer yet again, when it should be the shareholder that takes the hit - they took the risk and should pay the piper. That is why commercial control does not work. Some form of heavy state regulation/control is needed. I never thought I would be in favour of nationalisation to any degree, but.. always keep an open mind.

    Actually I'm not sure that nationalisation as such is the solution, but certainly a lot of customer-centric legislation needs to be in place - possibly along the lines of the Treating Customers Fairly legislation.

    At the moment we seem headed for a return to the status quo armed only with a few apologies and vague assurances from the great and greedy.

  • Comment number 37.

    As some people above point out this article is really quite poor journalism. Net lending could not just keep rising without a driver for it e.g. price inflation.

  • Comment number 38.

    I'm not willing to listen to economists' predictions any longer: it is time to consign these people to the roles of "economic HISTORIANS" as their inability to make predictions is not just due to their own inflated sense of self-worth: simply put, current economic theory does not make for good forecasts. Economists are appalling at forecasting.
    Sorry couldn't let that one an Economic many posters on here you feel the need to make sweeping generalizations and also blame others for the world's problems. I, like many, have long seen the bubble growing and expected the burst to come each year since 2001 and was surprised when it didn't.
    Economic Historians, as a generalization, will tell you that's what happens to asset price bubbles as evidenced by the Dutch Tulip Bubble and the South Sea Bubble.
    Economists, Economic Historians, or whatever, are humans, a species yet to develop the faculty of predicting the future. If Economic Historians at least study and analyze the past then they have a chance of understanding the present and more of a chance of understanding economic forces at work so that they can make an informed guess at the future (i.e. forecast). That said, as I watched events unfold last October I knew then that the rules that applied to the economy before were being ripped up and needed to be rewritten certainly for the UK economy. Economic Historians do not tend to have an inflated sense of self worth, they'd rather understand the statistical basis of the economy and be happy that it is relevant to the present and perhaps the future.
    If we could predict the future we wouldn't be working as Economic Hitorians I can assure you!

  • Comment number 39.

    All money is debt. The only way for me to have a pound in my pocket is for me or someone else to borrow it from a bank. Apart from the relatively tiny amount of money circulating as notes and coins or held in current accounts, all money only exists as electronic ones and zeroes on bank computers in the form of credit/debt depending on what side of the coin you're looking at.

    And, whatever you may believe, it's all the banks' money, not ours.

    The big problem is that the banks only create the principal that they lend out, not the interest. That has to be paid for by 'growing' the economy. And what does 'growing the economy' mean? It means millions of people (called 'consumers' by the banks and economists) taking on more debt.

    As far as the banks are concerned, the 'real economy' is just a kind of hen house: it's there to keep the 'consumers' housed, fed and watered so we can take on more debt.

    Thanks to the deregulation of the last two decades, the banks have been able to keep back more and more of the debt-money for themselves, for use in games of Derivatives Poker and the like. This means that 'consumers' don't even get to use all the money they're paying interest on, and so have to resort to - you've got it - borrowing even more. (Society experiences these debt flows at a collective, not individual level).

    Like a Ponzi scheme, it produces fountains of wealth for those at the top . . . until the real economy is totally exhausted.

    In a 'normal' recession, the poor old draught animals at the bottom get to take a breather while the Government feeds the banks with low interest rates, bailouts,and QE if necessary, until the whole shebang is able to pold on again.

    But this isn't a normal recession. This time the banks have flogged the real economy to the brink of death. At the same time, through their incredible ineptness at Derivatives Poker, they've actually poured more money down a black hole than the entire planet is capable of borrowing into existence over the next decade or so. Even Ben Bernanke's helicopter-borne money printing presses will never keep up with the rate of destruction of debt.

    It's a bit late in the day for Stephanie to write: "But Lord, please don't send us there quite yet." We're already up to our necks in it.

    The roaring noise ahead isn't a bit cheer greeting the return of business as usual. It's a very, very, big waterfall.

  • Comment number 40.

    #37 needs to engage his brain, as his point is completely ridiculous. Steph states in the article that people move every 8 years on average. Therefore, unless prices fall back past 2001 levels, house purchases are bound to increase net indebtedness, as the buyer pays more for the house than the vendor had. The "driver" for this increase is past price inflation. No-one in their right mind could dispute that house prices have risen in the last 8 years!

    Steph then underlines this by pointing out that net lending continued to rise throughout the last recession despite falling house prices! If, as you state, price inflation is needed to increase net lending, how do you explain this?

    It's true that the whole thing works because the general trend in prices is upward, but then inflation has been a feature of our economy for almost an unbroken 70 years! Since this articles isn't about inflation, why should this permanent feature of our economy merit a mention?

    The fact that you (and others) don't understand the point does not make the point invalid.

  • Comment number 41.

    I'm old enough to remember 300plus economists writing to the Times or Telegraph to say that Thatcher's economic policy would end in tears.

    Then the UK got a little bit better.

    I can't recall 300 odd economists writing to say that a UK economic policy claiming "growth", but that was obviously based on a credit bubble, was wrong.

    I'd have more respect for them if more had simply said, over and over, "The Emperor's got no clothes".
    The reason why debt is massively higher now than 10 years ago is that the Treasury Emperor allowed money to slosh about with total disregard for the consequences.
    No limits on income to loan ratios.
    No limits on loan to asset value ratios.
    No limits on the ambition of government spend compared to sustainable tax-take.

    You dont have to be an economist to work out that was a recipe for disaster. So why didn't the "experts" shout it from the hilltops day after day?
    Was it just the "colour" of the government? Hope not. Economics should be a bit more scientific than that!

    What we've ended up with is a mass of indirect taxes that apply equally to rich and poor. But which actually hit the poorest the hardest.
    That from a great New Labour politician with leftish leanings and a "moral compass".

    Any more moral compass and we'd be better off selling the UK to China.
    At least they have money to spend that belongs to them!!!

  • Comment number 42.

    It's good to be back talking about economics again! It's particularly interesting to see that the focus of the debate today has concentrated upon individuals and households rather than the corporate economy. It is the gap between the corporate economy and the individual economy that has exaccerbated the whole problem and prevents us from finding a way forward.

  • Comment number 43.

    The Party was us, the working people that caused the world financial crisis, that is why we are responsible to pay it back to the poor innocent bankers who were victims of our unrestained consumption. Our governments allowed the banks to steal our savings as punishment for our desire to better ourselves and our living conditions and the education of our children..and to encourage savings....see, if they let the banks steal your retirement funds then you would need to save to replace them....really this is for your own good. But don't save too much because we will need to be taxed to pay for the funds given to the banks and of course that is the major priority. I don't have all the charts and haven't run all the numbers but my best guess is that greedy bankers and financial services scum along with corrupt politicans who negelected responsibilities for personal gain and cheer-leading econmonist who insisted that everything was just fine, caused the financial crisis, not the store clerk buying and expensive gift for his girlfriend.

  • Comment number 44.


    PorterRockwell (#40) "The fact that you (and others) don't understand the point does not make the point invalid."

    Points are neither valid nor invalid. Logical arguments are valid or invalid. Logical arguments have nothing to do with truth or matters of fact. The way that people talk is borrowed from subjects they tend not to understand, and as 'understanding' itself is a term which moot in his area (and not just this) at least since Greenspan made his 'confession', perhaps you too should question whether you really 'understand' either? Or is it now safe again just to assume that everyone knows what they are talking bout, a bit like Greenspan erroneously once did?

    In this area the emperor has been shown to have no clothes (it was done long befre the Crdit Crunch, just some didn't pay attention to 'third tier' analyses in logic and Natural Language).

    Let's not start pretending that all is OK now just a few months down the line - OK?

  • Comment number 45.


  • Comment number 46.

    Not to repeat many comments made as to QE being sucked in to Bank Bail-out No.5. it is worth considering the state of bank balance sheet impairment. Although credit demand is subdued for obvious reasons the Banks' funding gap on their balance sheets remain. They are holding large securitised loans on their balance sheets that, if sold to market could increase their losses. They are funding those loans with funding on shorter term maturities / wholesale funding and Govt backed bonds which will mature. They have been forced to buy back clever-by-arf Tier One and Two capital to refund their capital base properly ( still at median level ratio of 35times capital globally since end of 08). Govt- backed debts mature 2011/2012 and they will need alternative funding up to £500billion by 2013 to cover the holes as public sector funding/liquidity is progressivley withdrawn. Where banking sector risks are the highest such as UK, sovereign CDS risk premia are rising and will increase banks' own funding costs going forward.

    So, as you say Stephanie, " Who knows, if Britain stopped being a nation of big borrowers, foreign investors might even stop worrying that we would decide to inflate all our debts away." Another QE impairment if purchased bonds lose their value against increasing investor risk.

    So banks are less willing to lend to households and companies. If they do, they will charge an arm and a leg. Oh, and remember the banks have lost their competition so will screw more from the loans they make.

    And I havent bothered to talk about public sector deficits."Exceptional Times"

  • Comment number 47.

    People in general won't spend more because they can't.

    The irony is that the country has become a mainly consumer led economy with insufficient balance where if one area is in trouble there is not sufficient variety of businesses in other areas to carry it through.

    Those in what were seen as safe jobs are now realising that their turn to lose their jobs could come soon so are cutting their cloth accordingly.

    After such a boom there are those with cash who made a killing at the end of the housing chain but they are sitting on it waiting for the right time to invest.

    How long can the economy depend on QE and borrowing to keep it going if there is nothing else to rely on? Propping up a housing market in this way is only a temporary halt to lenders losses and this can't be sustained

    When we do spend we find most of the goods are imported so retailers margins alone aren't going to save us all.

    I understand what you are saying when you are hoping we don't stop spending for the alternative is totally unpalatible.

    Perhaps the general public have at last woken up to what they have been doing and the consequences of overburdening themselves with debt. All these positive noises we keep hearing from those with vested interests are now for the majority just water off a duck's back.

  • Comment number 48.

    The Keynesian view is that the government should do more borrowing and spending during a recession to compensate for the private sector's natural desire to save. The flip side is that during a boom the government should save more and spend less. (Brown obviously wasn't a Keynesian during that period !)

    The flaw in this is that government spending is wasteful (especially under a Labour government). Surely we need measures which re-assure the productive side of the economy that they can afford to spend. Talk of the increased taxes required to pay for Labour's profligacy is enough to make me save even harder.

  • Comment number 49.

    Credit can disappear because it's been repaid or because the borrower has defaulted and the debt is written off. This is what deflation is; the destruction of credit. Even economists who should know better sometimes refer to deflation as falling prices. Falling prices are just one of the possible effects of deflation - they are not what deflation is.

    Deflation will reduce our debts to a level where repayments can be supported by our much smaller GDP and our much smaller incomes. It will be incredibly painful for all of us, no doubt.

    I do hope we'll get to the point where those higher up the food chain than me will actually recognise the deflation we're already knee-deep in. It's not going away quickly because you can't stop deflation in a credit-based economy! QE is a desparate wasteful attempt to expand credit while deflation works to crush it. Deflation will win.

  • Comment number 50.

    Stephanie, if borrowing nothing at all is as you suggest worrisome to say the least then we, wee small savers have every right to bitch and moan. They sold off manufacturing and as you pointed out, for twenty years everything’s been geared to borrowing. If we’re lucky we’re all going to be paying it off for the rest of our lives. If we’re not lucky…

    I hope the system will somehow stay up. On that basis I accept everything, TARP money that went to banking friends – as always that catchphrase ‘oversight’ got wheeled out again then promptly ignored –, stimulus packages, quantitative easing, budgets and deficits in the trillions, all because the alternative is too appalling to contemplate – a crash that will send our far from perfect world down into a1930s-like depression, or worse.

    Have we moved back, away from the precipice? Are we wearing a blindfold and how would we know? I don't know, but I know that politicians have failed to do one thing that really needed to be done: we all know deep down that when a group of bankers shuffle some papers unproductively and get away with hundreds of billions in bonuses, yet cause losses of tens of trillions in global wealth, and cause 100 million people to become unemployed worldwide, there is only one word to describe it: criminal. Politicians, economists and pundits all remain unwilling to make the accusation, what is going on instead is a grand cover-up. Why else aren't the authorities breaking down doors and grabbing computers to preserve data that will implicate executives? Why are managements that caused this still in their jobs and still receiving bonuses? Are the huge bonuses paid out simply hush money? How can the rating agencies still be in business?

    We've got a justice system for a good reason, which is to protect society whether from terrorism or criminality, intentional or otherwise, and in every field today problems have the same core: we can't get the decisions taken we need to 1) put justice in action and 2) set the conditions from which to steer out of the quagmire - steps necessary to start to put things back and give the world a chance to tackle the challenges, overpopulation, climate change et al.

  • Comment number 51.

    Dear Stephanie
    So people are paying back some of their debt. That is exactly what I would do if I had any debt. You, along with the government, seem to be totally out of touch with the common person who has more common sense than most politians (and, it appears to me, economic journalists).
    Yes I had a mortgage once and once I borrowed £500 for a car (a silly thing to do).
    In my opinion the government should be damping down the greed upon which our economy seems to feed, and encourage thrift (an old fashioned word which the government may not understand). If you borrow you have to pay back with interest - keep all borrowing to a minimum. Obvious really, isn't it Stephanie?
    Yours sincerely

  • Comment number 52.

    Individual Retirement accounts were reduced by the banks in various amounts averaging about 30% to cover the theft and misdeeds of the banks. So it is a bit disingenuious to suggest that people were not saving. Since nothing has changed concerning the protection of such future savings one is at no more risk betting on horses than giving your earnings to a bank. Atleast with the horse you can decide the amount of the wager. Past misdeeds are still fresh in the public mind so the re-writing of history is a little early.
    I can see a nice stipend in the offing for an economist speaking engagement at a banking may wish to put it in savings, I would bet it on a horse.

  • Comment number 53.

    The cost of bailing out our economy will be payed back by our children and their children, so the least we can do is rebuild an economy for them that is not going to have the same problems we have now, as they won't be able to afford to sort out the mess as they will still be paying for our one! Economic growth has for years been based on the same people borrowing more and more money, ok they were also spending it, but when everybody is living like that it can only go on for a limited time until it collapses in on itself. Think about house prices, they are over 200 percent higher than they were 10 years ago, even today, yet even now most people are paying mortgages that are in line with what they earn, they just have loads of notional equity and so they feel rich. Most of these people have affordable mortgages and plenty of income left over to spend or save as they wish. Fast foward 10 years and most people will be paying a much larger percentage of their monthly salary on their mortgage payments because house prices have risen much faster than wages! So what type of economy will we have in a decades time? Just throwing the money at it without taking any of the pain that realigning our economy needs is doing our decendents the biggest injustice of all.

  • Comment number 54.

    I totally disagree. Fall in borrowing is the only good news since the start of correction 2 years ago. That is the goal. How can you suggest that at 800bn pounds personal net debt (after deduction of all personal UK savings!) it would be good if "net borrowing kept up". The UK stands completely alone in this world with this sort of negative personal wealth. But you are like the mayor of London, you are a warrior of the bubble. You don't want change and that is why you say what you say!

  • Comment number 55.

    This is the best news yet.

    The crisis has been caused by unsustainable rising debt; the solution is to reduce debt not increase it.

    It is now clear that the government and the banks have failed to correct things, in spite of devaluation, massive loans to banks, and quantitative easing.

    This increasing of debt must stop; from now on, support must be given to individuals and companies who are reducing their debts, and to those who are saving against hard times. It is the only way.

  • Comment number 56.

    Thanks #40 I'm fully aware that house price inflation caused the increased levels of personal debt! I said this was poor journalism because Stephanie puts this down to the length of time people hold mortgages and the reduction in the size of that mortgage over time. This would have no effect on average debt even if it was 16 years instead of 8.

  • Comment number 57.

    Remember Stephanie earns £100,000+ from a company that takes its earnings from the taxpayer. She might have a morgage but debt to her is an academic word, a theoretical concept. Like most of our bankers and modern politicians she probably doesn't know what hardship is. She won't be losing a job and and everything is just a firelight muse over a glass of port.

  • Comment number 58.

    #53 wrote:

    "Fast foward 10 years and most people will be paying a much larger percentage of their monthly salary on their mortgage payments because house prices have risen much faster than wages!"

    Check out the Nationwide house price affordability indices at On past trends, house prices look set to keep on falling, or at best stagnating, for a long time to come - possibly another 8-10 years.

    But you're probably right about wages not keeping pace with house prices. This isn't an ordinary recession where inflation takes a short breather: it is already turning into full blown deflation.

    As deflation sucks money out of the global economy, there will be less money to pay people. If wages fall faster than house prices, which is more than possible, houses will become increasingly unaffordable even to those on average incomes - just like at the top of the boom but without the option of getting a mortgage at all, let alone a no-docs, 125% loan from Northern Rock or whatever.

    The Government can no longer keep up the trick of transferring real wealth to itself and its friends while maintaining a facsimile of prosperity for the rest of society by encouraging us to make up the shortfall in real money by massive borrowing. We're all going to start feeling a lot poorer soon - meanwhile the present Government is busy throwing our children's futures away in a desperate attempt to hold up the façade until after the next election.

  • Comment number 59.

    #57 DenseSingularity,

    I don't know how much Stephanie earns and I doubt that you do either and it is not pertinent to what she has written that she earns her salary in either the public or private sector.

    If you disagree with what she has written then say so. Just making a personal attack is neither justifiable or beneficial to the presentation of your point of view.

  • Comment number 60.

    House price risers are directly linked to disposable spending.Thus if food,utility bills or taxes go up, house price increases will be modest.If this items decrease, house prices will increase faster than wage inflation.

    The issue I have with the economy at the moment,is its seriously out of balance.Future tax income is going to be considerably less in the years to come ,regardless of the government plans to increase tax for the rich.A slimmed down public sector & a robust plan to reduce our public debt is the only way I can see to get the economy going,not just for the short term, but for the medium term as well.
    As a country we have to realistic on what we can genuinely afford.For example the idea that we can maintain real growth in education and health services in the coming years is simply delusional.As for the armed services ,I think Afghanistan could well be its swan song,in terms of its current capabilities.
    Rather than following politicians like sheep we need to be far more robust in challenging their decision making.

  • Comment number 61.

    #56 withnail2009
    "This would have no effect on average debt even if it was 16 years instead of 8."

    Quite. And the fact that an economist at Goldman Sachs and the BBC's economics editor appear to struggle with simple arithmetic (I would have worded that a bit stronger but would like to stand a chance of getting past the mods) rather explains why we are on the edge of the abyss.

    #41 fairlyopenmind
    "The reason why debt is massively higher now than 10 years ago is that the Treasury Emperor allowed money to slosh about with total disregard for the consequences.
    No limits on income to loan ratios.
    No limits on loan to asset value ratios.
    No limits on the ambition of government spend compared to sustainable tax-take.

    You dont have to be an economist to work out that was a recipe for disaster. So why didn't the "experts" shout it from the hilltops day after day? "


  • Comment number 62.

    It doesn't seem *that* long since a previous Governor of the BoE was publicly expressing concern about the mountain of personal debt that was accumulating. Here we are, with individuals apparently doing something to lessen that debt and Official Panic seems likely to set in, although the actual reduction is tiny in comparison to the whole.

    As some may recall, I will happily admit to not being an economist (in fact my joy at not being one increases daily) so I don't know whether to be angry or terrified by the fact that our "national finances" appear to have been, and continue to be, based almost entirely on individuals accumulating debt by spending money they don't have and in many case aren't very likely to have in the forseeable future. Perhaps many have also realised that the things they have been accumulating debt by buying weren't all that necessary after all.

    Is it not becoming ever clearer that the much vaunted "growth" we have hitherto thought we were enjoying has in fact turned out to be cancerous?

    Was not the paying off of personal debt a predictable possibility? If "economics" as a subject cannot recognise that this sort of thing might happen, can it make any claims to be a science? The fact that it might be an *unwanted* outcome cannot be used as an excuse to omit it from the theory that is economics.

  • Comment number 63.

    #61 StevieYorkshire,

    Ah! so it was all the governments fault was it? We the British public had nothing to do with it? All of that credit card and unsecured bank loan debt was foisted upon us and we had no option? Re-mortgaging on speculative valuations to fund 'lifestyles' was a government policy and not a public action?

    Businesses engaged in higher and higher levels of gearing because the banks made them?

    If you want to lay the blame for:

    "No limits on income to loan ratios.
    No limits on loan to asset value ratios.
    No limits on the ambition of government spend compared to sustainable tax-take."

    Then look no further than the financial services sector. As you say it was a recipe for disaster. It was bad business practice engaged upon in a bacanal of greed by the financial services sector - particularly the banks.

  • Comment number 64.

    #41 fairlyopenmind. It is no use questioning the cult of the "expert" - that too has been captured by the oligarchy.

    Get a job in any commercial organisation and you support the strategic plan - or one way or another you get fired. Look at the emasculation of pretty much all risk management departments of major financial corporates.

    Take a look at the UK power supply position. Any "expert" will tell you that from about 2017 onwards the UK is highly likely to experience developing power outages. This is well known and completely ignored.

    You do not need any expert knowledge to understand that a debt problem cannot be solved with more debt. This is obvious but again completely ignored.

    Policy makers are alleged to be quided by a range of macro economic indicators. But well they know that they have destroyed the statistical integrity of virtually all of their key indicators. It follows logically that relying on corrupted indicators will lead to corrupted policy. This is also known but ignored.

    The sound bite has been elevated to the status of religious dogma. "Let´s move on" being a simple phrase to fully and completely address the UK role in the tragedy of Iraq. There was an "expert" who tried to warn of that folly - and he paid with his life.

    If you want advice then try Joe Strummer: "stop wasting your time, there´s nothing coming. Only a fool would think someone could save you"

  • Comment number 65.

    What a pity this insane government and their wired-to-the-moon Keynesian economic advisers are simply incapable of following the lead of sensible individuals in this country who are reducing borrowing, spending and consumption and paying off debt.

    Well, that's hardly what is required; at least not right now, is it Ms Flanders? Got to keep those prices propped up; got to "fight" this recession, eh? Who cares about the long run? Certainly not Keynes and not you it would seem as well.

    As you brought up the subject of the car scrappage scheme in your article, it is worth pointing out that this is a perfect example of the broken window fallacy. This is the sleight of hand by which the general public are gulled into believing that big (and getting bigger!) brother government - and the late JM Keynes of course - have all the answers to "cure" a recession. Here we go:

    Government offers "sweetner" (taxpayers' money) to consumer to take on more personal debt by trading in his/her paid-for, perfectly workable vehicle that is then destroyed in the name of fuel efficiency and saving the planet. What? Come again?

    I'll tell you what Ms Flanders; I'll blow your house up, offer you an illusory tax break (other peoples money) so that you can borrow even more money to buy a new "eco-efficient" property and therefore I can claim I'm providing a great service by stimulating the house building industry, real estate business and the economy in general. Oh, I nearly forgot; we can "save" some more polar bears as well!

    Here's another one:

    Why don't we just smash up everything in the whole country, print huge amounts of paper money (debt) to pay for rebuilding it all again. Now, that would definitely stimulate economic growth, wouldn't it?

    We’ll be on the road to recovery in no time, won’t we?

    And now for something not so completely different: Today, Mervyn King publicly announced he is, in fact, a hat stand and not the Governor of the Bank of England. And Gordon Brown agrees with him too!

    Did anyone see where that howling, barking mad dog went? The Palace of Westminster perhaps?

  • Comment number 66.

    #63 foredeckdave,

    Personally I think the government, the banks and the public score an equal 33% share of the blame. They were all enjoying the ride too much to complain.

    I find it crazy how the government and the media attempt to put all the blame on only one of them. They are even trying to blame hedge funds in their desperation to find a scapegoat.

  • Comment number 67.

    I agree with you - I was quoting someone else and should have removed the first sentence, however I do agree with the government being responsible for ramping up their spending!, but as for income to loan ratios and loan to asset value ratios being ignored then yes that was the financial services industry. And yes, there is a good proportion of the population responsible for their bad debt/spending habits. However, it is a lenders professional job to evaluate risk when lending (you should expect them to be better at making an informed decision and to give good advice - in the same way that if you take your car to a garage to be repaired you should expect them to do a better job of it than yourself) and they must take the lions share of the blame. Secondly, there is an overwhelming opinion in this Country now that house prices just magically rise and that it doesn't matter how much you stretch yourself because you don't want to miss out and have to pay more later. This sentiment is still strong enough to drive the ridiculous mini-bounce we're now experiencing (combined with shortage of supply which is itself a function of the same mentality - would be buyers taking houses off the market and waiting for prices to bounce back. The fundamentals will bring prices down again soon though, and when sentiment finally does turn, it's going to be carnage in the property market.). The amount of pressure by vested interests and their friends in the media (including disgracefully the BBC) in ramping property over the last decade played a very strong part in the housing bubble - there simply was little or no informed debate within the mainstream media about the effects of the what was very obviously a bubble destined to cause enormous financial distress. Besides, I know someone that was advised by financial adviser to take 100% mortgages from the northern rock at the peak of the market! - I do therefore have a little difficulty simply blaming the public for taking on the debt - it strikes me as blaming the victim somewhat - in the most part I blame financial and economics journalists for not tackling the glaring, self-evident problems that were mounting for years - and the fact that those same individuals seem to pretend not to know what's going on even now - either that or they're very thick.

    Anyway, the point I was trying to make is that there were numerous obvious indicators of an overheating economy that even laymen such as myself could see a mile off for years prior to the first rumblings of this crisis – so why did the journos do nothing – why did 99% of economists not see it coming? – are they really that stupid, or are they just too close to their friends in the City that profited from all the madness?

  • Comment number 68.

    #66 withnail2009. As you are so keen on percentages try this: The top 1% of the population own 40% of aggregate wealth.

    Why do these people get to enjoy such disproportionate wealth and yet, according to you, share no more blame than some pensioner struggling to pay their gas bill on an old age pension?

    Wealth buys control, power and influence. If it did not then the accumulation of vast wealth would be no more interesting than collecting old postcards. How the rich must love people like you - queuing up to accept a full share of the blame for something that you could not possibly have caused or contributed to except by your passivity and inaction.

  • Comment number 69.

    #67 my rant
    if you bothered to wade your way through it, that should obviously be "would be sellers taking houses off the market" rather than buyers

  • Comment number 70.

    Problem a) : 'If all of us - government included - had borrowed less in the boom years, we'd now be very grateful for our restraint.' - If we had borrowed less then we would not have had a boom - Why should we be grateful for being poorer for the past 20-30 years ?
    Problem b) 'In 1993 - when, I might add, personal debt was £1 Trillion lower than it is today.' That means that between 1993 and 2009 we have had £ 1 Trillion extra cash to spend than we were paid in wages - That’s how companies make profit and keep going - they get more money in sales that they spend in wages. If we didn't have this extra cash we would be broke - there would be no economy.
    Problem c) if we're going to have more balanced growth in the future than we had in the past, you might well want borrowing to grow more slowly than the economy as whole - so the stock of debt relative to GDP starts to fall. Ok so I pay you 1p to make a car and I want to sell it to you for 2p to make a profit, If you are not going to borrow that extra 1p (£ 1 Trillion) - consumer debt - then where will it come from ? If I pay you 1p to make me a factory wall - Capital expenditure expansion programme - then the that will mean increased company debt and it will make no effect on the stock of debt relative to GDP ratio that is suddenly so important, If I pay you 1p to make a car for export - Net Export programme - then which country wants to play the Net importer game that has ruined us so much? You could try NEFS - Net Export Financial Simulation - I pay you and extra 1p to make the extra car but instead of giving it to a foreigner we get to keep it and use it ourselves - see
    Problem d) And you would certainly want households to start saving more -saving means I pay you 1p to make a car and you don't spend the 1p you save it - so I go bust - what kind of a certain want is that ?

  • Comment number 71.

    #70 GlenisDevereux

    Absolute drivel.

    "a) : 'If all of us - government included - had borrowed less in the boom years, we'd now be very grateful for our restraint.' - If we had borrowed less then we would not have had a boom - Why should we be grateful for being poorer for the past 20-30 years ?"

    Most money is debt it's true, but the idea that printing lots of it (or creating lots of it as new debt) makes you richer is just about the dumbest idea I've ever heard. All it does is create inflation - in the case of mortgage lending it created house price inflation - this meant that money was worth less relative to houses. There were still the same number of houses the last time I checked so I don't know how printing lots of money to represent houses made us better off.

    b)" 'In 1993 - when, I might add, personal debt was £1 Trillion lower than it is today.' That means that between 1993 and 2009 we have had £ 1 Trillion extra cash to spend than we were paid in wages - That’s how companies make profit and keep going - they get more money in sales that they spend in wages. "

    You miss the point. We have an expansionary debt-based system for sure - as the money is printed in terms of debt creation it creates inflation - what is important is that the average debt per worker is serviceable - as the average debt / earnings ratio has increased it is now less serviceable. Hence we're not doing too well and we're going to be doing very well for a long time.

    "If we didn't have this extra cash we would be broke - there would be no economy."

    Erm, we are broke - if it escaped your notice, almost the entire financial system of the western world collapsed, precisely because there were too many unserviceable debts created by too much lending in relation to earnings.

    d) "And you would certainly want households to start saving more -saving means I pay you 1p to make a car and you don't spend the 1p you save it - so I go bust - what kind of a certain want is that ?"

    Again you miss the point - there has to be a balance in our system between people taking on debt (for house purchase and businesses) and saving for a time in life called 'retirement' - this is when we stop working and enjoy ourselves. Unfortunately this won't be happening for lots of people for a very long time because they will be servicing large debts on houses that are now likely to depreciate in value for the best part of a decade or two and they haven't made adequate provision in terms of savings and pensions because they are too indebted. I would say that this is not good news for this Country, because all of the 'wealth' that you say has been created by printing more money is in actual fact an IOU that has to be paid back during the course of a working life time to a bunch of broke losers in the City who miraculously have managed to persuade the people they got into debt to bail them out because they're worth so much to the economy we can't risk losing them. There could be a major problem here - mass default if enough people think they can't be bothered paying back the IOUs - or maybe rioting when there's enough unemployed owing enough money to a bunch of champagne swigging toffs. But I'm sure you wiill be happy with your monopoly money.

  • Comment number 72.

    Re Base_Experience
    I wish this site was like digg where I could press a thumbs up icon next to your comment

  • Comment number 73.


    tht's what I assumed you meant. It's good to rant from time to time! :)

  • Comment number 74.

    #68 armagediontimes,

    Well Pareto go it right when he suggested that the 20/80 rule led to a contented society!

    It's not just the concentration of wealth but the nature of wealth itself. The 1% appear to have divorced the majority of their wealth from the tangible assets that were supposed to support them e.g.

    Buffett's wealth is based upon the 'value' of his investments which have little to do with the 'real' value of the tangibles and more to do with artificial speculative 'values'.

    Mega profits and bonuses are being made in the commodities markets where even the nature of the commodity traded is secondary to the present trading price.

    Financial products were being created by rocket scientists who may have an understanding of complex mathematical models but no knowledge of the markets in which they were operating.

    We now have to question the real meaning of wealth before we even start to examen its distribution. I am begining to believe that there is little of true substance underpinning your 1% other than a lot of 0000s on a statement.

  • Comment number 75.

    Withnail #37, #56 (and response #61) I don't read Stephanie's explanation the way you do, and your assertion in posting #37 is wrong. Even if house price inflation stops or reverses, as long as new mortgages are substatially bigger than the old ones close to maturity (comparing balance at the start), there will be a net increase in lending - unless there is so little new lending that it cancels out this effect, which is the point she makes. Past inflation still drives net lending for years to come. See #12 and #13.

  • Comment number 76.


    If house prices remain stationary for the next 20 years and the number of new mortgagees remains the same for the next 20 years, the level of mortgage debt will eventually find a constant level after the effects of previous inflation have worked through the system (as you mentioned) - but that isn't what Stephanie scribbled:

    "As Kevin Daly at Goldman Sachs reminded me, the average house in Britain only changes hands every 8 years, meaning the people selling the house, on average, should have a smaller mortgage than the people buying it.

    So - even if house prices have been falling for a year - you'd expect the buyer's new mortgage to be larger than the old mortgage being repaid.

    Net lending would carry on rising, even if house prices were falling, and even if households were saving more."

    Complete and utter nonsense.

    You are absolutely right to mention that previous price inflation will take its time to work its way through the system, however there is no mention of this in the argument put forward by Stephanie - it is simply wrong - or she's misunderstood what Kevin Daly told her.

    "meaning the people selling the house, on average, should have a smaller mortgage than the people buying it. "

    Just because the people selling the house have an average outstanding mortgage that is less than the new mortgagee does not mean that the total debt will increase. She clearly misunderstands the point.

  • Comment number 77.

    But of course when she mentioned the period of 8 years I should have assumed that we all understand that house prices only ever go up. After all, she does work for the BBC.

    Let's see what effect the 50% fall in property prices will bring to this total debt figure.

  • Comment number 78.

    If we see the media delighting in signs of recovery, i.e if we see relived talk about a return to growth in property prices, and if we see banks return to lending as before - what we'll see is a return to the status quo, the very conditions which, not too long ago we were all hearing described as years of 'living beyond our means' and determinant of the economuc crisis.

    We don't like change. Change means difference, and we generally don't know what to do when conditions become very different. We feel incompetent because, we can't do the jobs we were trained to do etc etc.

    Maybe lots of us shouldn't have been doing what we were doing? Maybe other people should try doing something else instead? Anyone see that happening?


  • Comment number 79.


    I think you've read the original article as saying that the reason overall mortgage debt will continue to increase is because new mortgage loans will be at a higher percentage of property value than the old loans they are replacing. And that therefore even if property prices are stationary there will be a continuous growth of overall mortgage debt.

    Which of course is nonsense.

    I'm not sure the original article was meant to read like this. The key point which should have been mentioned is that there has been considerable price inflation over the 8-year period mentioned, and that even though prices have now fallen for a year, the level is still higher than 8 years ago, so you would expect the average initial principal on the new loans to be higher than the ones being replaced. And that assuming the overall payment age-profile remains unchanged, gross outstanding debt will move in accordance with gross initial principal.

    Bad wording, I think, not a faulty appreciation of the situation. At least I hope so!

  • Comment number 80.

    Foredeckdave #59 - while I don't see any need for personalising the debate by raising SF's salary, I think there is a broader point that is worth making. The middle class/professional classes who in the main have beenfitted from the boom years (and most of whom are still doing alright) are reluctant to support calls for radical changes to the economic and financial systems which are required. There seems to be a collective denial going on and vested interests at work to maintain the status quo. I consider most economists to form part of the professional classes which support the status quo and, in my view, this tends to prevent many of these economists from being duly critical of the status quo. For instance, I am surprised that there has not been a greater outcry over the failure by the government to reform the banking system by separating retail and investment banking.

    What will be interesting is whether the "middle classes" may change their position of being supportive of the status quo once they realise the true cost of the bank bail out and that they will bear the brunt of this in massive tax increases and public spending cuts.

    More generally, what I really object to (and I am not necessarily accusing SF of this) is the role which journalists have in validating propoganda (government or otherwise) designed to maintain the status quo. This is sometimes done actively and sometimes done passively in the sense that journalists are diverted from the important issues by analysing and reporting on what I consider to be trivial issues. One area where this has been particularly rife is in relation to the environment. There are regular stories on new green technologies which it is claimed will prevent or limit climate change; these include windpower and biofuel. I think it is now accepted that biofuel is not a solution due to the amount of fossil energy required to produce it, the destruction of environment which often accompanies growing biofuel crops and the conflict between growing food crops and biofuel crops. It was, in my humble opinion, just another story designed to encourage people to believe that the status quo in relation to energy consumption can continue; something to allow us all to sleep peacefully at night while we cling on to the thought that everything will be all right. In my opinion, far too many journalists are complicit in this process and seem to be unable to question and critically analyse these stories. Instead, they often lend credibility to these stories.

  • Comment number 81.

    Re mortgages and net debt:

    Suppose Mr X bought a house in 2001 for, say, £100,000 with an 80% mortgage (so he borrowed £80,000) and in 2009 Mr Y bought the house off Mr X for, say, £200,000 with an 80% mortgage (so he borrowed £160,000) then overall mortgage lending will have increased.

    Isn't that what Stephanie is saying?

    It is irrelevant that had Mr X sold in 2008 rather than 2009 he could have got £250,000 for the house (and the buyer might have borrowed more than £160,000 to buy it at that time).

    Have I missed something?


  • Comment number 82.

    Post 80 (nedafo) raises some valid points. While I accept that there may be a reluctance to accept some of the necessary changes by some sections of the community ("middle/ professional classes") I would be interested to know what the *actual* feelings of different "classes" actually are. I'm not sure that this has been researched. At the same time the whole subject is so complex that trying to get reasoned views might be as fraught as trying to get comments about some new surgical procedure.

    However, the point about "journalists validating propaganda" is entirely true. There is a clear difference between just reporting "facts" or in the case of the environmental debate "opinions" or "theories" ("prejudices" even) and proper investigative journalism that makes a determined effort to establish just what is going on under the radar. Again while not wanting to drag journalists' salaries into the debate, some of them do seem rather excessive when all we are getting is a summary of what someone else wants us to hear. The point about biofuels illustrates this quite well; a brilliant idea that took no account of the Law of Unintended Consequences.

    Of course this goes way beyond how things are reported; it all starts with the way we are governed in the first place. Which, IMHO, is not very well.

  • Comment number 83.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 84.

    These figures are hardly surprising. It's not that people don't want to borrow - it's the fact that the banks have cut back lending.
    Worse still, they're calling in overdrafts and when they do deign to offer facilities, they're charging extortionate rates of interest and crippling arrangement fees. After greedily taking taxpayer support AND hoarding QE monies, the banks are STILL kicking businesses and individuals when they're down. They're acting quite disgracefully. Caledonian Comment

  • Comment number 85.


    Ashill (#81) "Isn't that what Stephanie is saying?"

    If she'd said it, you would be able to quote it verbatim. The problem with 'saying' (an intensional idiom of propositional attitude, i.e mental term) is that unless the person allegedly uttering/writing something is quoted verbatim as evidence of that assertion, they haven't said it at all, and if you, logically, i.e deductively, infer it, they still have not said it, you have.

    It's an important point. Not that many will see it alas (seeing is yet another one, if you see what I mean ;-)).

  • Comment number 86.

    Comment 84 : CaledonianComment

    Yes, this is the bleating of the politicians and much of the media. I wonder how many of them realise that much of the "taxpayers'" money being provided to the banks is necessarily being used to replace overseas wholesale funding which is no longer available? It's ridiculous to look at it as unassigned funding just waiting to be lent to eager UK borrowers - what it is, largely, is replacement funding for balance-sheet lending that is already in existence.

    We need to get the message, and get it quickly. The bottomless well of money that was there up to mid-2007 is no longer available. All our institutions who lent money obtained from dipping into this well have to find alternative sources of funding just to maintain their existing balance-sheets. If the "taxpayer" hadn't provided this alternative funding the institutions wouldn't have been able to continue in business, because they couldn't meet the demands for repayment made by overseas lenders.

    So the politicians, the media and the general public need to become aware how absurd it is to have as a working theory that the "taxpayers' money" being fed into the banks is money available for immediate lending to "hard-pressed" UK industry and general public. This is hogwash.

  • Comment number 87.

    #80 nedafo,

    I understand the points that you are making - especially in relation to the media coverage.

    In simple terms, I see the situation this way. The car is almost at a stop and the engine is making very strange noises. So instad of investigating what is wrong, we pour-in more petrol and re-start the engine. Now as it has cooled a little, it appears to start but nobody knows if it will keep going.

    We don't really know the true causes of this catasrophe and we have done nothing of any substance to try and find out. The so-called experts are like a group of men looking under the bonnet and saying "I think it's the coil" and "nah! it's the water pump" BUT nobody wants to get their hands dirty and start checking. The media are giving minute by minute reports of what the men think in the hope that very soon they can announce "IT'S FIXED". The politicans still have one hand on the petrol pump but are praying "please lt it start and then just go away!"

    After all that, the engine still has not been repaired. Even if it gets a little further down the road, it's going to go bang! - and this time in a BIG way!!!

  • Comment number 88.

    This is the backlash by the prudent in the war for our Economy, and possibly the first signs of the inevitable depression that awaits.

    There are 2 types of person in the Economy, the prudent and the over-consumers. There are of course some in between but regardless of how many, or where the line actually is drawn, there are 2 sides because you're either a net spender or a net saver - you cannot be both.

    The over-consumers have spent the last 10 years spending from paycheck to paycheck, borrowing to the hilt and spending 'expected income' on goods and services they could have managed without - non-essentials.

    Meanwhile the prudent have been spending and borrowing much less - as they are expected to do, however they have been spending to some extent.

    When the crunch came lending dried up and the over-consumers (OC's) were unable to keep spending, and in fact many of them have gone and will go bankrupt as a result, however true to form they are still spending to the bitter end - living in denial fo the day when the bailiffs come.

    However the reaction of the prudent was, when the interest rates fell, they took the chance to clear down their debts - why? because the prudent fear what will come afterwards not what their situation is now - the rising interest rates.
    Both parties are behaving as expected, and the highest paydown of outstanding debts is testament to this. However the problem comes with the banks. Their business is to make money from lending, but with the OC's all lying bankrupt (or near to) the banks are reluctant to lend to them. The prudent don't want to borrow which leaves the banks with no business.
    This is reflected in the distance between saving and borrowing rates as the banks desperately try to squeeze more from each customer.
    If our crisis wasn't a banking one then this wouldn't matter - however because it is, it means both problems meet in the middle - lack of lending and increase in borrowing.

    However, this is now a problem for us all because without business - the banks will find it hard to generate profit. Without profit they are not going to get the share price rise we all need to get out of our national stakes at a profit (as convincingly stated by so many Economists and Government spokesmen)

    This will lead the BoE with a further dilemna - which will result in further QE as they try to directly inject into our Economy so the prudent are filled with confidence and start borrowing and spending. Unfortunately this is not the nature of the prudent and they will only start borrowing and spending when they are absolutely certain the coast is clear and when they see the OC's are back providing their cushion.

    Sadly this is going to be further exasperated by the Governments dire need to raise taxes. The increased tax burden will reduce spending further and produce a downward spiral. Despite the constant noise from Governments that things are getting better it appears that we are heading in the opposite direction. The safest option for Government is to simply cut services and spending. This way they won't have to increase taxes and they won't have to keep injecting money into the Economy.
    However with record numbers of unemployed and an increase in pensioners and other state reliants - this is going to be a very unpopular move to make.

    I certainly would not want to be in Governments shoes right now. They have no good choices left - all roads are bad at the moment.

    It's not helped by some Governments now acting a la 1929 but instead of tit-for-tat trade tarriffs they're pulling out of the bailout money agreed - mainly because their Economy is (supposedly) no longer in decline (i.e. Germany)

    We need to learn that simply wanting something isn't enough to make it happen.
    The supposedly good news about HSBC's new mortgage rate of 1.99% was simply a ruse picked up by the media desperate to find something good to talk about.
    Requiring a 40% deposit and about £1100 arrangment fee you get this rate (which is variable on the SVR) for a mere 2 years. doesn't that say more about the banking industry's need to lend more but inability to do so safely, than anything I've said?

    Remember HSBC is one of the 'unscathed banks' - so what do you think the rest are going to do? I fear the result will be back to lending to the most desperate and most likely to default in an attempt to get lending started again.

  • Comment number 89.


    "Just because the people selling the house have an average outstanding mortgage that is less than the new mortgagee does not mean that the total debt will increase. She clearly misunderstands the point."

    The word "outstanding" was added by yourself, and is your interpretation. It may well be the only *correct* way to read the exact wording, who knows? However, as she doesn't say either way, it is perfectly reasonable to assume that Stephanie meant the size of the sellers mortgage at the *outset*. In which case her logic makes perfect sense. Taking this into consideration, isn't it possible that she is not talking "nonsense" and "misunderstanding the point", but in fact simply not being precise enough (for some of us), or at worst using incorrect terminology? ;)

  • Comment number 90.

    foredeckdave # 87

    "We don't really know the true causes of this catasrophe..."

    Speak for yourself Dave. For some of us it is blindingly obvious what has happened.

  • Comment number 91.

    #88 writingsonthewall. It does not seem to me to require any great intelligence or insight to understand that you cannot solve a debt crisis with more debt. Similarly if you are drunk you cannot obtain sobriety through drinking more alcohol.

    This simple understanding may explain why countries such as Germany are keen to reduce bailout funds as opposed to their holding any particular view of their narrow economic recovery.

    Aggregate debt in certain economies (UK, US, Ireland, Spain, Iceland, the Baltic states and others) has reached a level that exceeds the ability to repay. It is very simple; If debt cannot be repaid then it will not be repaid. Quite why you expect the Germans to voluntarily leap into an inescapable quagmire of debt is not clear to me, nor I suspect to the German government.

    The British have two main choices - either to irrevocably destroy their currency or to withstand the withering pain of deflation.

    Germany, for the time being, retains rather more flexibility.

    I consider it unlikely that Germany will be presuaded by a few English speaking whackheads with dodgy PhD´s screeching the mantra of more debt.

  • Comment number 92.

    91. At 3:28pm on 03 Sep 2009, armagediontimes

    Quite - the Germans are doing what everyone else does in this world - concerning themselves solely with their own individual position.

    This is where libertarianism takes us - we think we're getting freedom but in fact we're splitting ourselves from each other and making us easier to conquer.

    However what the Germans haven't considered is who is going to buy the goods they will be making in the future? If more countries default due to the lack of financial support or their currency falls dramatically then they will not be importing foreign (German) goods and it will return to decline.

    Then we all go back to square one.

    Don't get me wrong, I'm not advocating this position I am trying to state where I see this going and the consequences of trying to live as an island in the Economic world.

    Having just come back from Germany it's certainly not 'in recovery' as the media want you to believe. The internal consumption is way down and it's only exports and the Government bailout that has ensured a 'paper growth' in the GDP figure. Whether this growth will be sustained we shall see.
    Remmeber the Germans had a problem a number of years ago when the population decided to 'wind down', reducing their standard of living which allowed them to live on savings - it stagnated the Economy. Maybe the German people will return to that style of living which will mean slow growth for them, but at least it will be steady.

  • Comment number 93.

    Stephanie said
    "Who knows, if Britain stopped being a nation of big borrowers, foreign investors might even stop worrying that we would decide to inflate all our debts away.

    Yes, there'd be everything to play for in savers' Britain. But Lord, please don't send us there quite yet. "

    Why? What is so wrong reducing debt and increasing savings? We need to reduce consumption and increase production. You get there by increasing savings and reducing debt.

    Also the creditor nations should worry about the debtors using inflation. They will. They are. The US and UK are increasing the money supply (stealing savers purchasing power) and the creditors are rightly worried.

  • Comment number 94.

    "#87. At 2:12pm on 03 Sep 2009, foredeckdave wrote:"

    Dear lord, that's a nice analogy. Incidentally, JadedJean, are you a fan of Plato or Socrates? ;-)


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