IMF warns Britain over £1.1 trillion debt mountain

Apparently a new series of Panorama starts this Sunday on BBC. The first one will be examining whether Gordon's run of good fortune has at last run out... sounds like it might be quite interesting :0)

Lending by banks is a double edged weapon which, as Hyman Minsky pointed out, can explain the business cycle. Easy borrowing gives a leg up to weak economies but before long can lead to over-borrowing with Ponzi positions all over and failures being contagious owing to interlocked balance sheets.

Further, as Minsky pointed out, borrowing does not just stimulate demand. It also provides a source of profits. An illusion can be given that all is well when the borrowers cannot sustain their position. The likely result in Britain can been long predicted by some economists but is taking longer to arrive than might have been expected.

UK population = 60,000,000

debt 1 trillion = 1,000,000,000,000

average debt = £16,667

Considering that mortgages are included in the figure, it isn't really very much at all when you compare it with the average cost of a house, which was £186,207 in July[1].

Okay, not everyone lives in their own house, but if we assume an average of three people per house then:

Average debt per household = £50,000

I know that not every household own their house, but it still seems to me that most of this 'debt mountain' is made up of perfectly reasonable mortgages.

1 Gareth.

On 16 Sep 2005 10:56:31 -0700, "Crowley" mysteriously appeared thru the usenet mist to inform us thus...

Gordon Brown-Stuff's already lining up the scapegoats for the UK mess ...OPEC - it's all their fault.

You could be dead right there. Found this amusing piece on Gordon Browns economic policies on

679 Gordonomics :

1. Don't raise income taxes but cream money off everywhere else you can find it, such as pensions.
2. Spunk all the cash from 1 on an army of unproductive public servants, while continuing to underpay nurses and teachers.
3. No cash left from 2, so use public-private partnerships for any infrastructure projects, saving yourself money now but burdening the rest of us for decades after you've gone
4. Tie business up in red-tape to stifle productive private sector growth. Stand back and watch while as many jobs as possible are outsourced to Bangalore.
5. Engineer massive house price inflation and a massive increase in personal debt through low interest rates (independent MPC my @rse!), to con people into thinking they are richer than they are and get them to spend spend spend!
6. Dodge the generalised inflation normally caused by 5 by encouraging unprecedented levels of immigration, both skilled and unskilled, thus holding down wage growth. A bogus inflation measure will help you here as well.
7. Rewrite or redefine any budgetary rules you set yourself at your own whim.
8. Bleat on about tackling third world poverty to make yourself look like a good guy. But don't actually do anything constructive.
9. Blame "global challenges" and Opec when things start to look shaky. Use lots of big angry hand gestures when you give speeches.

10.Try to get Tony's job before the sh*t really hits the fan...better hurry along now...

£1 trillion: our home loan debt

Dan Atkinson, Mail on Sunday

6 February 2005

BRITAIN'S mortgage debt will break through the £1 trillion barrier for the first time next year, according to the Council For Mortgage Lenders.

The staggering record of more than £1,000bn will mean the stock of outstanding mortgages will almost equal an entire year's gross domestic product - the income produced by Britain's businesses, Government and individuals.............

With alarm bells already ringing over the ever-increasing debt load faced by millions of households, the landmark is certain to trigger further accusations of irresponsible lending.

It will mean that mortgage debt as a proportion of GDP will have almost doubled since 2000 and risen nearly five times since the mid-Sixties.......

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"Crowley" wrote

Indeed. Suggest that petrol is so expensive not because of your $1,000 a barrel taxes but because of their $70 a barrel crude oil. Yeah right.

I can never understand this notion of "irresponsible lending" rather than irresponsible borrowing. At the end of the day who stands the loss the borrower or the lender?

The real tragedy, as I see it, is in those who borrow in the main responsibly at the top of a housing boom and subsequently find themselves in negative equity. However, risk is a characteristic of any market. Folk should be educated to know and believe that.

Mel Rowing

The lender, obviously. What's your point?

In message , Crowley writes

I wonder if home ownership is 5 times what it was in the mid-sixties?

And I wonder what repayments are as a %age of income?

The borrower through bankruptcy and the taxpayer through bailing out the bank if it goes bust.

The banks know that the government will bail them out with our money if they go bust, so why shouldn't they lend 250k to a 19-year-old chav who works in a bar? It's profit if they keep paying the interest, and, in the worst case, a bail-out if they don't.

Mark

According to Roger Bootle recently debt repayment as a %age of household after tax income is now back at 1990/1 levels.

80% was mortgages and MEW according to this interesting BBC article from July 04 on the UKs growing 'debt culture' : quote "Mortgage debt for house purchases and remortgaging accounts for close to 80% of the trillion pound borrowings."

I hear that increasing numbers of borrowers are getting further and further behind with the payments on those "perfectly reasonable mortgages" Debt counselling agencies are calling for more funding to meet the massively increasing demand for their services. Repossessions are on the rise. All seems quite reminiscent of 1989/90 although the levels of personal debt are worse this time.

That "irresponsible lending" would lead in effect to irresponsible loss and therefore begs the question as to why financial institutions should seek to lose money as a matter of commercial policy.

Mel Rowing

Banks will put customers into bankruptcy as a last resort if they feel that in so doing there is a reasonable prospect of the recovery of debt after Inland Revenue have had first pickings. They are more likely however, at least initially, to enter into agreements centred on re-scheduled, partial repayment or a combination of both.

Wherever do you get the idea that the taxpayer bails out insolvent banks? Should a bank cease trading through insolvency then it goes the same way as any other business, into administration. In that event, the largest burden falls upon shareholders (right at the bottom of the list) and then depositors next to the bottom).

It doesn't happen very often since banks are heavily regulated and are required to hold a ratio of their deposits as liquid reserves.

Just try going into a bank and borrowing £250k without security or proof of ability to repay.

Mel Rowing

He's probably referring to the growing numbers of self-cert mortgages in recent years. Another financial scandal in the making I suspect.

Bitstring , from the wonderful person John Redman said

Not quite that bad, I think it's only ~$150 a barrel taxes ...

I thought, reading between your lines, that I detected a hint of rhetoric, i.e. I understood your question "who stands the loss" to be rhetorical and assumed that *your* answer would be "the borrower, obviously". There is the old adage that if you owe the bank a hundred thousand and can't pay, then you're in trouble, but if you owe them a hundred million and can't pay, then the bank's in trouble. Hence my contrary answer "the lender, obviously".

Irresponsibility is a question of degree, though, and I imagine it certainly can make commercial sense to push the boundaries of caution into the high-risk area. Clearly one wouldn't go as far as actually seeking to lose money, but one could sail so close to the wind that one would expect some loans to go bad. That wouldn't matter so long as those that didn't made enough profit to make up for the ones which did.

More accurately, the wholesale price of gasoline is about 18%

while duty and VAT are 79%, so if a price of $70 = 18% then the 79% in duty = 79/18 x 70 = $300 a barrel in tax.