Why is personal DEBT so high in this country?

Generali

harry_w wrote: »

After the Asian Debt crisis they saved like mad, along with the Chinese holding down their currency to industrialise, and the Japanese practically giving money away at zero-interest rates after the collapse of their asset bubbles, it created a wave of available credit for the west to consume.

The US, UK, Ireland, Spain, Iceland etc swallowed the bulk of this as cheap debt and convinced themselves that their own resulting asset bubbles were real growth and that trade and [structural] budget deficits could always be financed.

The asset bubble encouraged many individuals to speculate themselves, and gave them the confidence to use their wealth for conspicuous consumption signifying their success rather than consolidate their gains.

The rapid expansion and seemingly endless duration of the bubble also drove others to take on huge amounts of the cheap credit available in order to avoid being 'left behind' relatively poorer.

The progressive erosion of sensible regulation and controls over finance during the Thatcher years and under Blair/Brown allowed for the bubbles to go on unchecked. In some ways, I think this is The Lawson Boom squared. We're in a state of negative equity.

Well one possible way out of this mess is that savers who have lost out in the Far East will say, 'Sod it! Well just live for today!' and so exporting opportunities will open up.

ad9898_3

Generali wrote: »

You missed a bit mewbie



Debt and household income in the UK:

Look at all that MEW, follows the house price graph perfectly from 2001-2007. People thought they were wealthier, yet in reality, they just had more debt.

Really, how could people be so stupid.

rl290

Would it surprise you to hear that the uptake of credit cards on the continent is much lower than in England?

ad9898_3

rl290 wrote: »

Would it surprise you to hear that the uptake of credit cards on the continent is much lower than in England?

No it wouldn't, we have more credit cards than people. I just could never understand why people keep buying things on credit. The novelty factor from buying something lasts much longer than if you have the spectre in the background that what you bought you really couldn't afford.

harry_w

Generali wrote: »

Well one possible way out of this mess is that savers who have lost out in the Far East will say, 'Sod it! Well just live for today!' and so exporting opportunities will open up.

I hope so.

I think the suppression of Asian consumption relative to their earnings is one of the factors that's grossly distorted global trade.

Too many people making things they can't afford to buy in Asia just encourages people in the west to go on borrowing to buy things they couldn't afford.

One of the better background pieces, from just before the blow-up in October.

Asia’s revenge
By Martin Wolf
Published: October 8 2008 19:54 | Last updated: October 8 2008 23:48
...

Last year, the aggregate surpluses of the world’s surplus countries reached $1,680bn, according to the IMF. The top 10 (China, Japan, Germany, Saudi Arabia, Russia, Switzerland, Norway, Kuwait, the Netherlands and the United Arab Emirates) generated more than 70 per cent of this total. The surpluses of the top 10 countries represented at least 8 per cent of their aggregate GDP and about one-quarter of their aggregate gross savings.

Meanwhile, the huge US deficit absorbed 44 per cent of this total. The US, UK, Spain and Australia – four countries with housing bubbles – absorbed 63 per cent of the world’s current account surpluses.
...

A simple way of thinking about what has happened to the global economy in the 2000s is that high-income countries with elastic credit systems and households willing to take on rising debt levels offset the massive surplus savings in the rest of the world. The lax monetary policies facilitated this excess spending, while the housing bubble was the vehicle through which it worked.

The charts show what happened, as a result, to “financial balances” – the difference between expenditure and income – inside the US economy. If one looks at three sectors – foreign, government and private – it is evident that the first has had a huge surplus this decade – offset, as it has to be, by deficits in the other two.

In the early 2000s, the US fiscal deficit was the main offset. In the middle years of the decade, the private sector ran a large deficit while the government’s shrank. Now that the recession-hit private sector is moving back into balance at enormous speed, the government deficit is exploding once again.

Looking at what happened inside the private sector, a striking contrast can be seen between the corporate and household realms. Households moved into a huge financial deficit, which peaked at just under 4 per cent of GDP in the second quarter of 2005. Then, as the housing bubble burst, housebuilding collapsed and households started saving more. With remarkable speed, the household financial deficit disappeared. Today’s explosion in the fiscal deficit is the offset.

Inevitably, huge household financial deficits also mean huge accumulations of household debt. This was strikingly true in the US and UK. In the process, the financial sector accumulated an ever greater stock of claims not just on other sectors but on itself. This frightening complexity, which lies at the root of many of the current difficulties, was facilitated by the environment of easy borrowing and search for high returns in an environment of low real rates of interest.
...

The crisis demonstrates that the world has been unable to combine liberalised capital markets with a reasonable degree of financial stability. A particular problem has been the tendency for large net capital flows and associated current account and domestic financial balances to generate huge crises. This is the biggest of them all.

Lessons must be learnt. But those should not just be about the regulation of the financial sector. Nor should they be only about monetary policy. They must be about how liberalised finance can be made to support the global economy rather than destabilise it. ...

History's making it look like Old Labour were right about a few things after all.

chopperharris

Need and want caused the credit problem.

Credit should be for things we need , not want , we all need housing so ok ..... but do we really "need" the house , or is it "want" if you already have a one?

Take for example that before widespread mortgages , for any person other than the middle classes , we had a housing structure where most folk rented from landlords , then came council properties , then came home ownership.Whole famlies lived , bred , died in the same street and worked but a few minutes by a distillate powered omnibus or even just a walk away.The housing market changed , it evolved....as did aspirations.

It evolved again when Maggie came along and gave us the right to buy , but with no more council building to replace the ones sold.Which meant the "lower classes" having to buy rather than rent -thats "need".I did an essay in the 80s called "slavery by mortgage" , perhaps now it could or should be titled "gifting our children our debt as our only legacy".

These xla homes on rtb were/are essentially rented anyway just the same , but now the owners are the lenders until that debt is paid.Sure it was cheaper than renting , a good thing right?

Not too long ago , and about the same time as the above along comes the "car is not a luxury but a neccesity" generation.Even more debt , and instead of a cheaper car for many years its replaced for a new bigger one , just as the neighbour/sibling.collegue does the same.Soon afterwards come the two car family , to drive kids to school that we all walked further away than theirs is , and in every weather.Sure we convince ourselves that its better to be in congestion to and from work alone in a car than get home faster by moving nearer , or god forbid sit next to another person on some unhygenic public transport and interact with them./ UH , "shivers"

Do we need tv entertainment.How many could do without the sky tv subs and go to 5 channels only?But then again I enjoy just sitting flicking through my 200 plus channels , saying "rubbish" , "seen it" and end up putting it on 24 hour news because the channels are full of repeats .....repeats that I paid for with my licence fee the first time round.

Then theres the internet direct debit and computers , "oh but jnr needs it for school".HAHA , right , dont give me it hes on world of warcraft making himself a level 50 elf druid - translation "bullied reality social outcast" level of the clan toilet swirly.Daddy is on facebook [strike]grooming[/strike] talking to a girl the same age as his princess to replace the wife that put him on the leather sofa she "needed".Princess is talking to some guy on facebook on her laptop , that she "needed" for school , whom seems to know her every teenage thought and wants to meet him .....I think you can see where thats going.Mother is on freindsyouwouldleaveyourpartnerforunited.com looking up the guy that dumped her before she "settled" for dad.The point five child is learning abour business studies , ie downloading asian midget poon dvds to sell at school.

I need my Mobile though , why?What did we do before them , well we probably used the non mobile one at home thats now piping the internet down it.Before the telephone , well it could just wait til you see them next , or be put in a letter/telegram if its that important.Instead we buy mobiles for everyone , spending money we dont need to for included minutes , instead of pay as you got.We even buy schoolkids them , then we complain about our kid getting happyslapped by his peers , its videod with it , then put on youtube and summarilly bullied to the point of a nervous breakdown at aged 11.....well who is gving them the things !!!!!! people....its not like they are runnig a business so need them , or need an emergency transplant.

Still at least theres my break from reality , the games console , couldnt do without that though.I really need that , so does the kids , and even the grandparents are into the WII rather than just smelling of it , to them WII was world war two.We sit three generations deep infront of the tv , shaking the sticks about , a happy family playing bowling and tennis.Its not like you can actually go out and play sports for real now anyway , the council run sportcentres were closed down because no one wanted to use them , and the bowling centres closed for the same reason.....mostly because sport became footie by thumbs and the console just replaced participating in actual playing outdoors.

washing machines , well thats a need , no one has opened a launderette for years I can see that as a "need.But a tumble dryer , while theres radiators blaring and everyone is sitting in tshirts and shorts indoors when its minus ten outside well thats antother thing entirely....get a jumper on instead of changing your supplier.

Conservatory , yes thats needed , you pay 10k+ to use it twice a year....and excuse the sillines of a glorified greenhouse without any plants it as putting value on the house.Yet it is shadowed by the neighbours house and is pointing north...then theres the extra heating for it to use it as a dining room so it gets used more as justifaction for buying it....then you just eat your dinner on your lap in front of the surround sound tv or take it to your bedroom instead if your a kid.

Holidays , a need , well maybe.You actually save up for something , or stuff it just get a loan , for a fortnight away in some searing hot hell hole , and force yourself and family to enjoy themselves .You buy a camcorder on credit to record the event and dont watch it ever again after the first time.You moan theres no brit food , and no one speaks english , or the reverse you get there and its full of obnoxibrits and the place is like blackpool in a heatwave....and thats where you went abroad to avoid going on holiday to.You cant wait to get back to the grind to say how good it was , and savour a years worth of sun in two weeks that will give you melanoma later in life.If your lucky your teenage daughter will only have an std to remember fabio by and not your future grandchild.....and you tipped him too because he wanted to send money back to his wife in africa.

So people , need is entirely different from want , you need valium and scotch , because you want the debt collection agency to stop calling.

skap7309

Generali wrote: »

You missed a bit mewbie



Debt and household income in the UK:

Do you know what, there is a similar trend to the house prices graph on HPC. It even has the little flat line in 2005.

An interesting point to be made here. People thought as their house rose in price they were becoming richer and richer however going by the above it looks like it was all because people were further and further into debt.

EDIT: Sorry ad9898, just noticed ive put exactly what you did. That'll teach me to read less than 10 posts.

skap7309

Just another point to be made.

I have really noticed that people's attitude is changing now. Lots of people around me and at work are cutting back and TBH everyone seems happier.

It is as if they realise they didn't need this item and they didn't need that item etc.

Generali

skap7309 wrote: »

Do you know what, there is a similar trend to the house prices graph on HPC. It even has the little flat line in 2005.

An interesting point to be made here. People thought as their house rose in price they were becoming richer and richer however going by the above it looks like it was all because people were further and further into debt.

EDIT: Sorry ad9898, just noticed ive put exactly what you did. That'll teach me to read less than 10 posts.

It could of course be that mortgage debt so completely dominates the total debt of households that a link to house prices is likely.

skap7309

Generali wrote: »

It could of course be that mortgage debt so completely dominates the total debt of households that a link to house prices is likely.

Yes i agree. Someone at work was telling me yesterday how his friend was close to paying off his mortgage and then took a further £80k on top of it so he could 'build a fish pond, decorate, add a conservatory and a workshop to his home' during the good times. If that is not false wealth then i do not know what is.

In a sad state of affairs he has now had his work cut back to 4 days a week and he is thinking of selling as he can no longer afford the mortgage he was so close to paying off.

My guess is this story is repeated '000s of times across the UK.