quote : "....a large part of the assets base rests on the boom in house prices which some believe to be an inflated bubble which could painfully burst....."
Strong stuff from Vince Cable who used to be Shell plc's chief economist and is now LibDem financial spokesman ..................
Forget Prudence. We're drowning in debt, Mr Brown
By Vince Cable (Filed: 07/03/2006)
Indeed, retail spending trends suggest growing nervousness, as is borne out again today by another set of weak British Retail Consortium sales figures.(.......see graph......)
Britain's personal debt is increasing by more than £1m every five minutes and families have an average of £47,000 of debt - double the level in 1997 and £8,000 of it is unsecured, mainly credit card debt.
Optimists would say that none of this matters since debt servicing is not a problem in the era of low interest rates. Comforting, but wrong.
Recent figures from the OECD show that 18pc of take home pay now goes into debt service, once allowance is made for minimum credit card payment: a level very similar to that of the early 1990s when the 1980s boom collapsed.
County courts data shows a 70pc increase in repossessions in 2005 (albeit at a lower level). Personal bankruptcies are at record levels (67,580 last year). The Financial Services Authority reports that 2m families are "constantly struggling" though not yet in arrears.
The Citizens Advice Bureau and Consumer Credit Counselling Service report a very big increase in distress enquiries. Large and growing numbers are either drowning or getting seriously out of their depth.
They are dragging their creditors with them. Write-off rates on credit cards have quadrupled since 1997. Total debt write-offs are now taking roughly a fifth of bank profits.
Some of us will feel no sorrow for the banks since overall profitability is exceptionally - some would say excessively - high. We saw another example of this with HSBC's profits yesterday.
But it is recklessly irresponsible of some banks to be lending at six times peoples' incomes in an environment where there are significant downside risks to the economy and bad debts are growing.
I have been accused of being a false prophet of doom. One argument thrown at me is that any problems should be containable using the Bank of England's flexible interest rate policy.
The problem here is that whereas, in the early 1990s, three quarters of debt service was interest, now the proportion is well under half (just over 8pc of disposable income). Unlike a decade ago, mortgage principal repayment is becoming a problem and, even more, the need to clear short-term credit card debt.
A further argument is that there is no household solvency problem since assets are - roughly - three times the value of liabilities. However, a large part of the assets base rests on the boom in house prices which some believe to be an inflated bubble which could painfully burst.
Moreover there are quite different types of households. There are millions, mainly older people, sitting on substantial property and pension fund assets while younger people are straining to service debt and maintain positive equity.
A continued growth in unemployment and a slowdown in income growth could imperil the latter without touching the former.
What is to be done? On the regulatory front there should be a tightening up on non-income verified mortgages and also the practice of extending overdraft and credit limits without borrower consent.
The Office of Fair Trading has to be more proactive in ensuring that there is adequate consumer protection for mortgage payment protection insurance - the only safety net many borrowers have.
It should be tougher, too, in flushing out the hidden charges in credit and store cards and on overdrafts. There is insufficient debt pooling, not least because the Government drags its feet on student debt.
The Government has also been painfully slow in rolling out a promised network of generic, genuinely independent, financial advice centres.
It is an irony that Gordon Brown's reputation for economic soundness rests not on prudence and thrift but on consumer self-indulgence and debt. That reputation may not survive much longer.
· Vince Cable is Treasury spokesman for the Liberal Democrats