Excellent article by Stephanie Flanders

julieq

Surprised this hasn't been noted yet

http://www.bbc.co.uk/news/business-17398014

Bears won't like it though.

Neverland

julieq wrote: »

"To state the obvious, the households with the increased debt are not, in many cases, the households with the more valuable assets.

Thus, we might well worry about the social and economic consequences of rising interest rates, in an economy with high levels of household debt, even if we don't have to worry about Britain being 'bust'.

Likewise, had it not been for the Bank of England's record low interest rate policy, bank losses on UK housing over the past few years would have been considerably greater."

You did actually read the article then? :rotfl:

tartanterra

Surprised at this, but glad to see the doom and gloomers getting one stuck up em'.

Households' total wealth, including housing, was worth eight-times annual disposable income at the end of 2010.

Nice to see someone not talking the country down again.:)

Wookster

I wandered when this would be posted.

But the debt that's caused the problems hasn't been the debt of households. It really has been down to silly bets by Britain's banks (and other parts of the financial system), which were NOT bets on UK residential property. Most of them weren't even in the UK.

Breathtakingly incorrect is all I can say. Perhaps she needs a basic lesson in accounting but if you have high debts then you need to service those debts, and money you spend on servicing debts is money you can't spend on consumption.

As for her comments below:

First, it leaves out the other side of the balance sheet entirely. The suggestion is that British households and firms are massively in hock to the rest of the world. They're not.

The value of an asset is determined in the market and it is pretty clear that the housing market is not functioning very well, if at all. The point about the UK being in hock to the rest of the world is actually irrelevant. The point is that consumers owe record amounts of money, which they have to repay.

This sort of economics is precisely why the FSA/ BOE failed to predict the crisis, the midst of which we are in. With logic like Broadbent's it is no wonder why the regulators failed.

I notice that she has conveniently failed to give a good reason as to why the recovery has been so slow.

Her article is so breathtakingly far of the mark I wouldn't be surprised if someone hacked her account and posted it!

Graham_Devon

It's all about ratios.

Ratio of assets to debts.

While you can look at total debt and total assets and conclude it's not too bad....you can't conclude that the millions of debt holders are also holding the assets.

For a start, it would be rather naive to do so.

Secondly, it's well documented not to be the case.

julieq

Debts are assets on lenders balance sheets.

It's a very well balanced article, and it is starting to introduce the idea that there isn't a significant personal debt problem in the UK, which is precisely what the evidence suggests. The credit crunch was caused by bad lending in the US which banks took onto their balance sheets in securitised form, not by any structural problems with the UK credit market. In the UK personal debt default is miniscule and perfectly well managed by the banks.

CRASH_BANG_WALLOP

Flanders on economics? as bad as her awful dress sense :rotfl:

HAMISH_MCTAVISH

CRASH_BANG_WALLOP wrote: »

Flanders on economics? :

Nope.

She was reporting on a speech by a member of the MPC and former Goldman Sachs economist.

Love this chart, by the way....



Says it all really.

HAMISH_MCTAVISH

Here's the most striking statistic: UK-owned banks have lost 15 times more on foreign mortgages, since the crisis started, than on mortgages in the UK.

Told you so....

Emy1501

I suspect we will find out who is right over next 5-10 years as rates rise many IO mortgages come to term and people start to try and withdraw their pensions from their houses.

I suspect we may find out like the banks found out that they are not worth what we all thought they were

Other problem with uk debt and wealth is the wealth is owned by a certain type of person and the debt owned by another.

Its the people with the debt struggling to pay we should be worried about.

HAMISH_MCTAVISH

Here's another interesting fact: the median loan-to-value ratio on a new mortgage didn't go up during the "boom" years - in fact, for most of the 1990s and noughties it was falling.

That's consistent with the idea that rising house prices caused bigger mortgages - not the other way around.

Told you so again.