How far did PPI go in masking the recession?

Graham_Devon

Just looking for throughts really.

The car market appears to be doing quite well. However, a huge aspect of that is people getting PPI payouts and splashing out on a car.

Which brings me to one of my nagging worries about the UK's recovery (I have a few, as you know).

What happens when the PPI payments stop flowing?
In a very unorthodox way, PPI rectification has been a big money-creation exercise for the benefit of consumers.

Over 18 months or so, banks have paid out around £12bn to those mis-sold the credit insurance, out of a total that they currently expect to pay of £16bn.

It represents an economic boost equivalent to circa 1% of GDP - which is big. It is a bigger direct fiscal stimulus than anything either government has attempted since the crisis of 2008, involving more money for example than the temporary VAT cut of 2009.

So PPI cash just might be the reason why the recovery here looks as though it was the fastest anywhere in the developed world during the last three months of 2013, a touch faster even than in re-energised America.

But the PPI tap is now being turned down. The question is whether the economic momentum it has helped to generate can now become self-feeding and self-reinforcing.

It's an interesting thought anyway. In the middle of a recession some households get massive injections of cash, many of whom have seen it as a windfall.

So how far will this have gone in "masking" the hardship that would otherwise have been inevitable? And what happens now that the PPI taps are being turned off?

http://www.bbc.co.uk/news/business-25635819

purch

Maybe if these fools who fell for the scam had spent the money which was stolen from them by the Banks instead of paying the PPI our GDP would have been much higher before 2007, and then the recession might not have been so bad, so then they wouldn't need to mask the recession by spending the money now that they could have spent earlier if it hadn't been fleeced from them by the Banks who caused the recession in the first place.

Or, on the other hand........:eek:


Anyway, how do you know that they are spending their PPI payouts on cars ??

CLAPTON

Graham_Devon wrote: »

Just looking for throughts really.

The car market appears to be doing quite well. However, a huge aspect of that is people getting PPI payouts and splashing out on a car.

It's an interesting thought anyway. In the middle of a recession some households get massive injections of cash, many of whom have seen it as a windfall.

So how far will this have gone in "masking" the hardship that would otherwise have been inevitable? And what happens now that the PPI taps are being turned off?

http://www.bbc.co.uk/news/business-25635819

a practical example of keynes economics

Graham_Devon

purch wrote: »

Anyway, how do you know that they are spending their PPI payouts on cars ??

Peston said so

There was also something on the radio in which a car industry "expert", (head of a UK car brand, but can't remember which) was saying the same thing.

How they all know, I'm not quite sure. I've certainly never been asked where the money is coming from when buying a car.

Must have been some sort of study / survey.

Edit: appears it might have been the head of Vauxhall...

But a car company boss has also admitted that cheap credit and people using compensation payouts from the mis-selling of payment protection insurance (PPI) as deposits, had played a significant role in the increased sales.

Duncan Aldred, managing director and chairman of Vauxhall Motors, told Sky News: "There's no doubt those two factors have been fundamental in the growth.

"The PPI mis-selling. It's estimated to have given around £3,000 per household in compensation, and in many cases that would have helped fund the deposit towards a new vehicle.

shortchanged_2

I suppose we'll just have to wait and see once the ppi payout taps have been turned off to see what effect it actually has had.

I would assume most sensible people have put the money away for a rainy day. :whistle:

chewmylegoff

PPI claims just moved money from one part of the economy to another. If banks hadn't paid it out to PPI claimants they would have just paid larger dividends and bonuses to different people who would then have done other stuff with it. At a macro level I doubt it made any difference to anything.

CLAPTON

chewmylegoff wrote: »

PPI claims just moved money from one part of the economy to another. If banks hadn't paid it out to PPI claimants they would have just paid larger dividends and bonuses to different people who would then have done other stuff with it. At a macro level I doubt it made any difference to anything.

presumably a logical conclusion would be that nothing (except printing new money) makes any difference to the economy as money is merely moved about.

unlikely

chewmylegoff

Well if the assertion is that paying £3,000 to a PPI claimant boosted the economy because they must have spent it then presumably we can assume that if the £3,000 had instead been paid as a bonus to a banker they would have also spent it, possibly also on a car.

[Deleted User]

Nonsense "debate". The PPI debacle has done nothing to invigorate the economy.

CLAPTON

chewmylegoff wrote: »

Well if the assertion is that paying £3,000 to a PPI claimant boosted the economy because they must have spent it then presumably we can assume that if the £3,000 had instead been paid as a bonus to a banker they would have also spent it, possibly also on a car.

there is a different propensity to spend in different income brackets

in general richer people tend to spend less of any increase compared to poorer people

there is also the wind fall effect : unexpected money is often used for special things rather than the mundane so a new car, special holiday, big ticket item etc.

and of course it not clear that the bank would have paid out so much if they hadn't been forced to; they may have used it to rebuild their balance sheets.

Loughton_Monkey

I simply look on it as a case of "accidental savings".

These muppets who fell for it boosted the GDP by £12bn. What I don't know is whether or not the £12bn refund counts as "negative GDP" [probably not].

Now they have got their money back, so they can create another £12bn GDP. Unknown to these people, they were actually 'saving' their money to buy the car (or whatever they bought).

... large gin & tonics all round.....

I wonder now what bonus we will get through the next mis-selling scandal. This will be "Premium Bank Accounts". And/or perhaps "Identity Theft Insurance".

Then, of course, we have the really big one. Wonga loans. Won't take too long for a court to decide that some poor wretch either (a) didn't receive exactly compliant 'paperwork' (or equivalent) in the exact format required by Consumer Credit Act, or (b) the product was 'sold' with insufficient due care as to ability to pay back. Although this might affect only (say) 1% of customers, they will get an 80% complaint rate and it will bankrupt them either way.