Debt really is wealth..... Apparently.

HAMISH_MCTAVISH

An immensely interesting article in the FT today, that debunks the notion that excessive debt is holding back the UK economy.

Perhaps the most pernicious canard about the British economy is that growth is held back by heavily indebted consumers.

Only when household debt comes down, the story goes, can consumption growth get back to normal.

Nonsense.

Worse is the moralising tone, which insults millions of creditworthy households.

http://www.ft.com/cms/s/0/3f06ca5e-5d60-11e1-889d-00144feabdc0.html#ixzz1nPJGe5Yh


The article goes on to ask what changes when the author purchases a property at current house prices?

And notes that....

• UK physical assets remain unchanged: a second-hand house merely changes hands.
  
• UK financial liabilities rise as he has to use debt to purchase the home.
  
• The purchase price goes to the vendor so UK financial assets also rise.
  
• For the UK as a whole, the transaction raises both household debt and financial assets.

Also of interest, since 1995 household debt has risen from 104% of household income to 173% of household income, but household financial assets have risen more, from 360% of income to 442% of income.

So apparently, debt really IS wealth.

Good to know.;)

Graham_Devon

Debt (based on assets) is only wealth if you can shift that asset on to someone else and release the cash. In terms of houses this is always difficult as you need somewhere to live.

And that's a part of the problem right now.

MrRee_2

What about the huge amount of savings which have been built up over the last few years, with little house movement going on and with people saving against possible disaster?

Taking the fact that the downturn has lasted a full 4 years - 48 months - the majority of savers are sitting on savings in excess of £60,000 each.

It's what they decide to do with it, that will drive the economy one way or the other.

Thrugelmir

Nothing of substance in the article other than a personal opinion.

pqrdef

Excessive paying off of debt must be holding back the economy. All that money going into overpayments when people could be out spending it.

michaels

So if we all unilaterally declare that actually houses are now worth twice as much as they were yesterday then our assets to debt ratio improves even more - can anyone see a fallacy with this argument yet?

nearlynew

HPI cheerleaders are, by definition, debt junkies.

It's as simple as that.

Graham_Devon

michaels wrote: »

So if we all unilaterally declare that actually houses are now worth twice as much as they were yesterday then our assets to debt ratio improves even more - can anyone see a fallacy with this argument yet?

You offer me a million for my house, I'll offer you 2 million for yours and we'll leave it at that.

We'll both be incredibly richer. As soon as we have exchanged offers, I'm off down to the Aston dealership with my new found wealth.

Graham_Devon

And another one...

If I take a loan for 20k, spend it on a brand new car and drive off the forecourt, am I wealthier than I was before I bought the car? I have the larger debt and the new asset....

ChiefGrasscutter

MrRee wrote: »

What about the huge amount of savings which have been built up over the last few years, with little house movement going on and with people saving against possible disaster?

Taking the fact that the downturn has lasted a full 4 years - 48 months - the majority of savers are sitting on savings in excess of £60,000 each.

It's what they decide to do with it, that will drive the economy one way or the other.

They have all turned Japanese
They are reacting to falling incomes from their savings/annuities etc and increased inflation by cutting their expenditure drastically.
The Japanese savers (which is most of the population) did the same post their mega crash in ?early?1990's - cue their so called lost decade.

SecondLegDownIsTheBigOne

ChiefGrasscutter wrote: »

They have all turned Japanese
They are reacting to falling incomes from their savings/annuities etc and increased inflation by cutting their expenditure drastically.
The Japanese savers (which is most of the population) did the same post their mega crash in ?early?1990's - cue their so called lost decade.

Savers are, by definition, adept at cutting expenditure. We are by no means a high income family, but we are saving more than ever, inflation and low interest rates are not encouraging us to spend. In fact, where I used to spend a portion of the interest on my savings on luxuries, I now don't. Admittedly, there might be a little bit of protest in my spending strike.