Householders, the time for chastisement is over

HAMISH_MCTAVISH

British householder, the time for chastisement is over.

The banking system’s woes are not your fault.

You did not borrow too much in the run-up to the crisis.

And neither is the recovery dependent on a fall in your debt.

So says Ben Broadbent, external Monetary Policy Committee member, in an interesting speech in the City of London....

.....According to Mr Broadbent, the banking system’s problems are instead the result of rampant expansion in overseas lending, which increased five-fold in the decade leading up to the crisis.

http://blogs.ft.com/money-supply/2012/03/15/the-case-for-a-bank-of-england-ltro/#axzz21MQ2i57o

As has been discussed, the banking system woes had virtually nothing to do with UK lending.

And also from the FT's economics editor...

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.

Take me for example. I am a UK consumer and aspire to become a more heavily indebted consumer. I hope to achieve my ambition to increase my debts sometime over the next few years when I buy a larger house with a larger mortgage.

Of course, I never think about it in that way. The prospect of higher debt does not excite me nearly as much as a new home, but I am rational enough to know that with the property also comes the debt.

Given the rise in house prices over the past 15 years, the turnover of a property will almost always result in an increase in household debt as my mortgage will almost always be larger than that of the vendor.

The upshot is that I intend to contribute to raising the level of UK household debt relative to income. For the good of the country, should I be stopped?

The answer depends on what changes when I purchase a property at current house prices. UK physical assets remain unchanged: a second-hand house merely changes hands. UK financial liabilities rise as I have to use debt to purchase the home. But the purchase price goes to the vendor so UK financial assets also rise. In effect, I end up owing the vendor money and this debt is intermediated through the banking system. For the UK as a whole, the transaction raises both household debt and financial assets.

Moralising about the level of debt is therefore equivalent to getting into a tizzy about high levels of financial assets.

http://www.ft.com/cms/s/0/3f06ca5e-5d60-11e1-889d-00144feabdc0.html#axzz21Mn8Mt9l

Obvious really.

UK debt was never the problem. So limiting UK debt cannot be the solution.

ruggedtoast

Yes, let us celebrate the debt.

REJOICE!

DervProf

HAMISH_MCTAVISH wrote: »

UK debt was never the problem. So limiting UK debt cannot be the solution.

Limiting UK debt (by the credit crunch) prevented it being THE problem. I bet the American's wish that they had limited their lending.

HAMISH_MCTAVISH

DervProf wrote: »

Limiting UK debt (by the credit crunch) prevented it being THE problem. I bet the American's wish that they had limited their lending.

That's just nonsense though.

You're trying to solve a problem that doesn't exist by stopping lending that was on the whole responsible, prudent and sensible.

Which then causes the barking mad situation of today where we're trying to solve a housing shortage by building fewer houses...

abaxas

In other news.

Rapist free of blame due to durex.

chewmylegoff

Who cares what caused the problem? I don't really understand why you're so obsessed with the idea that it wasn't uk lending that caused the credit crunch. It doesn't alter the financial position of the banks one iota - could have been caused by lizard people manipulating silver for all it matters, it doesn't mean that uk lending is capable of returning to your version of normal by next tuesday does it?

Graham_Devon

These are just free comment blogs Hamish. Very much like you actually Hamish, even the writing style of the second one is much to your style. The "nonsense" paragraph and demoralising tone to others opinions at the start of it actually made me think you had wrote it.

You have found people like you, that is all. It's not fact.

RenovationMan

Graham_Devon wrote: »

These are just free comment blogs Hamish. Very much like you actually Hamish, even the writing style of the second one is much to your style. The "nonsense" paragraph and demoralising tone to others opinions at the start of it actually made me think you had wrote it.

You have found people like you, that is all. It's not fact.

Something you might like to remember when you post your own links to blogs to back up your arguments.

Graham_Devon

RenovationMan wrote: »

Something you might like to remember when you post your own links to blogs to back up your arguments.

Thanks.

Not sure I do / have however. Though you of course can just make up that I have.

RenovationMan

Graham_Devon wrote: »

Thanks.

Not sure I do / have however. Though you of course can just make up that I have.

You're 'not sure'?

You either have or you haven't. I know that I haven't.

Graham_Devon

RenovationMan wrote: »

You're 'not sure'?

You either have or you haven't. I know that I haven't.

I would have assumed, considering your point, that you knew I had.

Alas, just making things up randomly again. Not really surprising.