Another Bank of England warning on debt- Are we doomed?
Discussion
Been a few of these recently:
Bank of England warns of 'spiral of complacency' over big rise in personal debt https://www.theguardian.com/business/2017/jul/24/b...
"Over the past year, Brazier said, household incomes had grown by just 1.5% but outstanding car loans, credit card balances and personal loans had risen by 10%.
He added that terms and conditions on credit cards and personal loans had become easier. The average advertised length of 0% credit card balance transfers had doubled to close to 30 months, while advertised interest rates on £10,000 personal loans had fallen from 8% to around 3.8%, even though official interest rates had barely changed.
The past decade has seen the number of cars bought with a personal contract purchase (PCP) plan – under which the car is effectively leased – increase from one in five to four in five. Companies risk losing money if used car prices fall and Brazier said banks involved and the shareholders of car companies would “want to think very carefully about the risks”."
Bank of England warns of 'spiral of complacency' over big rise in personal debt https://www.theguardian.com/business/2017/jul/24/b...
"Over the past year, Brazier said, household incomes had grown by just 1.5% but outstanding car loans, credit card balances and personal loans had risen by 10%.
He added that terms and conditions on credit cards and personal loans had become easier. The average advertised length of 0% credit card balance transfers had doubled to close to 30 months, while advertised interest rates on £10,000 personal loans had fallen from 8% to around 3.8%, even though official interest rates had barely changed.
The past decade has seen the number of cars bought with a personal contract purchase (PCP) plan – under which the car is effectively leased – increase from one in five to four in five. Companies risk losing money if used car prices fall and Brazier said banks involved and the shareholders of car companies would “want to think very carefully about the risks”."
I think there were factors a year or so back - not least the referendum - which would almost definitely have caused consumer activity, and theerefore the accrual of consumer debt, to be subdued. It is not, therefore, totally surprising to see the year-on-year increase as people decide the sky is not actually (despite what project fear said) going to fall in.
In many regards the reduction in consumer credit rates is also to be welcomed - it is only when this happens that central bank policy actually filters down to the whole economy. Businesses and wealthy individuals have been able to tap into far cheaper credit for far longer (post GFC).
As OP points out, WRT PCP schemes, much of the risk is with the provider of credit and the car firms themselves, not the consumer. So in some regards, this offsets increases in personal borrowing.
In many regards the reduction in consumer credit rates is also to be welcomed - it is only when this happens that central bank policy actually filters down to the whole economy. Businesses and wealthy individuals have been able to tap into far cheaper credit for far longer (post GFC).
As OP points out, WRT PCP schemes, much of the risk is with the provider of credit and the car firms themselves, not the consumer. So in some regards, this offsets increases in personal borrowing.
The increase in personal debt was all part of the plan and the only thing keeping the economy moving. If you withdraw govt spending you need another means of increasing GDP. As increasing inflows via growing exports is much harder, why not just let people borrow more? Cynical?
AFAK Treasury forecasts from 2010 onwards have pencilled in this rise in personal debt.
AFAK Treasury forecasts from 2010 onwards have pencilled in this rise in personal debt.
Where's the incentive to save. I have no personal debt other than a small mortgage. I saved money, but I watch it decrease in value each year thanks to pitiful savings rates.
Those with no savings get elderly care for free, while those with assets have to hand it over.
I'm not surprised people think 'to hell with it' and borrow within a inch of their financial lives
Those with no savings get elderly care for free, while those with assets have to hand it over.
I'm not surprised people think 'to hell with it' and borrow within a inch of their financial lives
edh said:
The increase in personal debt was all part of the plan and the only thing keeping the economy moving. If you withdraw govt spending you need another means of increasing GDP. As increasing inflows via growing exports is much harder, why not just let people borrow more? Cynical?
AFAK Treasury forecasts from 2010 onwards have pencilled in this rise in personal debt.
This good old argument is well established in economics but it is unsustainable. It is generally seen as a "stop-gap" until other economic factors pick up.AFAK Treasury forecasts from 2010 onwards have pencilled in this rise in personal debt.
Since 2008 and the need to get people spending, interest rates have been historically low. BUT, they need to rise again soon otherwise the level of debt will force yet another crash.
A certain level of debt is manageable, when interest levels are low, but if you keep on piling up debt it defeats the beneficial reason of doing it and leads to another economic crash.
I've seen this repetitive cycle of debt and repayment and crash described as a basic system of capitalism.... but surely we need to move away from that model self-destruction and go towards a sustainable version of capitalism.....something we should have learnt from 2008.
This is why I can't understand how Labour's view of economics is 100% based upon increasing debt and how they attempt to argue that it is beneficial.
2008 wasn't that long ago....people surely can remember.
Look on the bright side, if you're cash rich when the crash comes, you'll be able to snap up deals on equities and other types of investments when everybody who needs the cash is trying to sell 
At least that's what I keep on telling myself, so as not to get depressed when I see most people buy now and think about paying later
At least that's what I keep on telling myself, so as not to get depressed when I see most people buy now and think about paying later
Elroy Blue said:
Where's the incentive to save. I have no personal debt other than a small mortgage. I saved money, but I watch it decrease in value each year thanks to pitiful savings rates.
Those with no savings get elderly care for free, while those with assets have to hand it over.
I'm not surprised people think 'to hell with it' and borrow within a inch of their financial lives
This has always confused me, where indeed is the incentive to work or save? Those with no savings get elderly care for free, while those with assets have to hand it over.
I'm not surprised people think 'to hell with it' and borrow within a inch of their financial lives
If you work you really should buy a house as renting when retired will eat through a lot/most of your pension, end up in a home with assets and savings...you lose them to pay for care, those that can't be bothered to work get their rent paid for them and NI credits for a state pension, when they retire their rent still gets paid for them so the incentive to work seems pointless as if they end up in a home the care is free!
Oakey said:
I work, my partner stays at home and looks after our son. She opened a Next account, they promptly gave her £4k of credit. f
king bonkers.
Next, they need to keep cash flowing and profits, average people, whoever they are want to keep up thier standard of living. Debt seems to be the answer, as you say, bonkers.king bonkers. Meanwhile the wealth gap continues to grow alongside the resentment that is causing. Something has to give, living on your own Island or ship is dandy but is it sustainable in Society?
Elroy Blue said:
Where's the incentive to save. I have no personal debt other than a small mortgage. I saved money, but I watch it decrease in value each year thanks to pitiful savings rates.
Those with no savings get elderly care for free, while those with assets have to hand it over.
I'm not surprised people think 'to hell with it' and borrow within a inch of their financial lives
Totally agree. The Government/BoE have presided over an extended period of low interest rates leading to a house price bubble and little or no wage increases. Large unsecured borrowing is available to anyone with not much more than one click of a mouse and mortgages are very easy to come by.Those with no savings get elderly care for free, while those with assets have to hand it over.
I'm not surprised people think 'to hell with it' and borrow within a inch of their financial lives
Now inflation is starting to come back strongly in the rest of the economy as well, are they really surprised that borrowing has gone up?
Atomic12C said:
This is why I can't understand how Labour's view of economics is 100% based upon increasing debt and how they attempt to argue that it is beneficial.
2008 wasn't that long ago....people surely can remember.
Personal debt is not like government debt.2008 wasn't that long ago....people surely can remember.
Btw 2008 GFC happened because of financial markets failure / sub prime personal debt, not govt debt. Anyway, it's a bit off topic.
Ultra low rates and easy credit (plus ridiculous incentives to boost house prices) have kept the UK economy moving. It was all part of Osborne's plan.
edh said:
Ultra low rates and easy credit
Yes but low rates for [I]who/[I]?Guardian said:
advertised interest rates on £10,000 personal loans had fallen from 8% to around 3.8%, even though official interest rates had barely changed
Businesses and wealthy private banking customers have, for some time, enjoyed access to very low interest rates, but not the bulk of UK domestic banking customers. There seems to be much confusion between BoE base rate and the rates at which mere mortals can borrow at.hyphen said:
Been a few of these recently:
Bank of England warns of 'spiral of complacency' over big rise in personal debt https://www.theguardian.com/business/2017/jul/24/b...
"Over the past year, Brazier said, household incomes had grown by just 1.5% but outstanding car loans, credit card balances and personal loans had risen by 10%.
He added that terms and conditions on credit cards and personal loans had become easier. The average advertised length of 0% credit card balance transfers had doubled to close to 30 months, while advertised interest rates on £10,000 personal loans had fallen from 8% to around 3.8%, even though official interest rates had barely changed.
The past decade has seen the number of cars bought with a personal contract purchase (PCP) plan – under which the car is effectively leased – increase from one in five to four in five. Companies risk losing money if used car prices fall and Brazier said banks involved and the shareholders of car companies would “want to think very carefully about the risks”."
Bank of England governors - all talk, no action. Bank of England warns of 'spiral of complacency' over big rise in personal debt https://www.theguardian.com/business/2017/jul/24/b...
"Over the past year, Brazier said, household incomes had grown by just 1.5% but outstanding car loans, credit card balances and personal loans had risen by 10%.
He added that terms and conditions on credit cards and personal loans had become easier. The average advertised length of 0% credit card balance transfers had doubled to close to 30 months, while advertised interest rates on £10,000 personal loans had fallen from 8% to around 3.8%, even though official interest rates had barely changed.
The past decade has seen the number of cars bought with a personal contract purchase (PCP) plan – under which the car is effectively leased – increase from one in five to four in five. Companies risk losing money if used car prices fall and Brazier said banks involved and the shareholders of car companies would “want to think very carefully about the risks”."
Oakey said:
hyphen said:
That doesn't mean it is bonkers though - they based it on your income and ability to pay it off, not hers. Standard practice.
You're going to have to explain how you work that one out. BofE has been bleating about credit for a few years now but nobody appears to be doing anything about it...
andy43 said:
BofE has been bleating about credit for a few years now but nobody appears to be doing anything about it...
The problem is if the Govt try to do something about it the economy will slow significantly. For the next 3-4 years while we leave the EU that is a big risk, therefore to keep the economy moving nothing will be done for 3-4yrs.Credit itself isn't a bad thing if used wisely, however with a "keep up with the Jones" it is obviously very risky.
andy43 said:
Oakey said:
hyphen said:
That doesn't mean it is bonkers though - they based it on your income and ability to pay it off, not hers. Standard practice.
You're going to have to explain how you work that one out. BofE has been bleating about credit for a few years now but nobody appears to be doing anything about it...
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